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5
min read

The Impact of the UK Living Wage Increase 2024 on HR Teams

Written by
David Whitfield
The Impact of the UK Living Wage Increase 2024 on HR Teams

The Real Living Wage is a voluntary wage rate that goes above and beyond the government-mandated National Living Wage.

It’s calculated by an independent group, The Resolution Foundation (commonly referred to as the Living Wage Foundation). The foundation undertakes research and analysis to determine the wage levels required to maintain a decent standard of living. Their calculations are based on actual living costs in the UK - primarily those essential expenses like housing, food, childcare, transport, and utilities. 

The aim of the Real Living Wage is to ensure workers can earn enough to cover the true cost of living. 

Given the country’s cost-of-living crisis, the Living Wage Foundation's advocacy for fair wages for workers is essential to helping people achieve financial stability - and dignity.

What Is the New Living Wage for 2024? 

The new Living Wage rates in the UK are £12 per hour, while the London Living Wage in 2024 is £13.15 per hour. 

So, how do these rates differ from the government’s National Living Wage?

Currently, the National Living Wage is set at a lower rate than the Real Living Wage. The national wage applies to workers aged 21 and over, and following a controversial 9.8% increase in April this year, now sits at a flat rate of £11.44 per hour - regardless of where you live. There’s no consideration of living costs in different regional areas, particularly the higher living costs in London. 

In contrast, the Real Living Wage is a voluntary rate that employers can choose to pay. Based on thorough research, it more accurately reflects the true cost of living and acknowledges the higher living rates in the capital. 

Employers who pay the Real Living Wage rates are demonstrating their commitment to their people's well-being. Paying people fairly helps create a more engaged, happier, and motivated workforce, where employees feel valued and appreciated.

  • National Living Wage (UK-wide, set by the government): £11.44 per hour for workers aged 21 and over.
  • Real Living Wage (voluntary, set by the Living Wage Foundation): £12 per hour across the UK and £13.15 per hour in London.

Why Is the Living Wage Important and Why Did It Go Up? 

The Real Living Wage is more than just a number. For many, it's a lifeline that helps ensure they can earn enough to cover their essential needs. 

The UK Living Wage increase for 2024 directly responds to the rising cost-of-living pressures we’re seeing across the UK. Since late 2021, prices for essential goods have started to increase faster than incomes, resulting in a fall in real incomes. Although inflation is falling, it remains higher in the UK than in many other Western nations. 

Apart from a few commodities like milk and butter, the price of most goods aren’t falling. According to the Joseph Rowntree Foundation, around 70% of households (a staggering 4.2 million) go without essentials. And almost 60% report they don’t have enough money for food. 

As we grapple with a cost-of-living crisis characterised by soaring prices for housing, food, and utilities, it’s increasingly important to ensure wages keep pace with these growing expenses.

The Living Wage Foundation 2024 collaborates with economists and other experts to determine how much a worker needs to afford basic necessities. This includes analysing the cost of rent, transport, groceries, childcare and more. They then adjust these costs to reflect regional differences.. 

The Real Living Wage promotes fair pay and financial stability. 

The research led approach ensures that the Real Living Wage‌ is not only accurate and sets a meaningful benchmark, but it’s current and reflects the economic environment. By increasing the rates, the Foundation is helping ensure workers maintain a decent standard of living, even in the face of escalating costs and economic challenges.

What Is the Impact of the New Living Wage on Employers? 

The new Living Wage wage rates for 2024 will bring big changes for employers, especially those 14,000 Living Wage accredited businesses. These organisations voluntarily pay more than the government minimum to ensure their employees earn enough to live on. And given their accreditation they’ll be passing on these new rates to their employees.

So, what’s the economic impact of wage increases? 

Any form of wage increase puts pressure on businesses to pay more, which affects their bottom line and profitability. 

Some businesses have called wage rises unsustainable, with the potential for knock-on effects. For many businesses, this means loading additional costs on already overburdened sectors, which could ultimately lead to fewer jobs.

Benefits of Paying the Living Wage

  1. Reduced turnover: One of the biggest benefits is reduced employee turnover. Fairly paid workers are more likely to stay with their employer, reducing the costs and disruptions that come with recruiting and training new staff.
  2. Increased productivity: Fair pay can lead to increased productivity. Employees who feel valued and fairly compensated are more motivated and engaged, which can lead to better performance.
  3. Improved workforce morale: If you’re meeting your basic living necessities, it’s likely you’ll be happier at work, which can help create a more positive workplace.

Challenges of Paying the Living Wage

  1. Pay compression: The wage gap between lower-paid and higher-paid employees could narrow. This can lead to dissatisfaction among senior or experienced staff who feel their pay doesn’t adequately reflect their roles and responsibilities.
  2. Budgetary implications: Increasing wages can have significant budgetary implications, particularly for small businesses or low-margin industries. Employers will need to reassess their financial strategies to accommodate higher wages, which could mean cutting costs elsewhere.
  3. Salary reviews for other staff: Higher wages for the lowest-paid employees may lead to salary reviews for other staff members to maintain internal pay equity. Further escalating costs for businesses.
  4. Certain industries will be hit harder: The new Living Wage rates will affect industries like retail and hospitality more than industries like professional services. Because there are typically more workers on lower wages. 

But while there are plenty of challenges to consider with the new Living Wage rates, there are also lots of benefits. 

Employers who commit to paying the Real Living Wage can enjoy a more loyal, productive, and motivated workforce, which can contribute to a business's long-term success and sustainability.

How to Make Sure You’re Paying Your Employees Fairly 

Ensuring fair pay for your employees is crucial for maintaining a motivated, loyal, and productive workforce. With the recent increase, reviewing your salary structures and ensuring they’re fair and competitive is more important than ever. 

Here are some key steps to help you achieve this:

Run a Comprehensive Salary Review Process

Conducting regular salary reviews ensures your pay scales reflect current economic conditions and industry standards. With the new Living Wage rates, there’s likely to be a ripple effect that will require adjustments for positions that pay just above the new rates. So running a comprehensive review process will be important to ensure pay equity.

Keep Track of Market Changes

To remain competitive, it’s important to closely monitor market trends and changes in salary benchmarks. Real-time benchmarking tools let you compare your pay offerings with the industry. To ensure you’re offering competitive compensation that attracts and retains the right people for your business.

Communicate with Employees

Open communication about pay and compensation policies with your people helps build trust and transparency. Regularly updating your team about changes to salary structures and explaining the rationale behind any changes can address any concerns. It also fosters a positive workplace culture. Feeling informed and valued makes people more likely to be engaged.

Consider a Transparent Pay Policy

Adopting a transparent pay policy can further enhance fairness and strengthen employee trust. This involves clearly communicating how pay decisions are made, what criteria determine salaries, and how employees can progress within the pay structure. This approach helps eliminate ambiguity, ensuring all employees understand how compensation is calculated.

Review and Adjust Regularly

The economic landscape is constantly changing, so it’s important to review and adjust your pay structures often. This ensures your compensation remains fair and competitive and keeps pace with inflation and changes in the cost of living. Regular adjustments help prevent wage stagnation and ensure employees feel adequately compensated.

Stay on Top of Market Changes With HR DataHub

Staying competitive and ensuring fair employee pay requires up-to-date, accurate data. 

HR DataHub's real-time salary benchmarking tool is invaluable for HR professionals to keep pace with market changes and maintain an equitable pay structure. 

Our salary benchmarking tool lets you compare your compensation packages with similar companies in your industry and location. By accessing real-time data, you can ensure your rates align with market standards, helping you remain competitive and attract the best people.

By exploring insights into current trends and benchmarks, you can identify discrepancies in your pay structures and make adjustments to ensure you’re fairly compensating all of your people.

If you’re interested in a free demo of our platform to see how it can work for you, get in touch with us today.