The living wage commission has announced its findings from its 12 month inquiry into the future of the living wage. The living wage, unlike the national minimum wage, is not a statutory minimum rate of pay, but a voluntary rate viewed as socially acceptable and intended to bring those on the lowest rates of pay above the poverty line. It is calculated by the Greater London Authority and the Centre for Research in Social Policy and increases each year as living costs rise.

The commission, made up of business leaders and anti-poverty groups and chaired by John Sentamu, Archbishop of York, recommends that the Government adopts the living wage as an 'explicit goal' to help lift 1 million workers out of low paid jobs. However, it refused to go further and support demands for legislation to create a higher minimum wage. Instead, the commission believes that the decision whether to adopt the living wage should be left for employers to decide, rather than being forced to introduce it.

The UK living wage rate currently stands at £7.65 an hour outside London (approximately £14,758 per annum based on a 37 hour working week); and at £8.80 per hour in London. This is higher than the lower pay scales on National Joint Council (NJC) pay scales.

Employers who want to implement the living wage can simply choose to pay their staff the relevant rate of pay, whilst others choose to seek accreditation from the Living Wage Foundation. The breakdown of accredited employers shows that the vast majority and in the private and third sectors, with only 18% of accredited employers in the public sector.

What is the cause of this? Is it the squeeze on the public purse, the obligations that becoming accredited imposes including being committed to a salary rise imposed by a third party, or the impact on less flexible pay structures?

Accreditation allows employers to use the living wage employer mark, amongst other benefits, but correspondingly brings with it certain obligations. These include applying the annual uplift and imposing an obligation on the employer's contractors to apply the living wage for their own staff. This can be imposed on contractors through the procurement process for the relevant service.

However this raises additional problems. Does the contractor apply the living wage for all members of its workforce, or will it only be obliged to do so for employees assigned to the service being provided?

If it creates differential rates of pay across the contractor's workforce there may be equal pay implications needing the contractor to demonstrate a material factor to explain the differences or, if there is a gender imbalance, objective justification. Objective justification requires a legitimate aim (here likely to be the aim to ensure workers are paid at least enough to meet the cost of living) and to have acted proportionately in the way in which an employer goes about achieving that aim.

The potential issues do not end there. Applying the living wage to the lowest pay grades creates a further imbalance with employees at a higher grade being paid less than those evaluated at a lower level. Employers adopting the living wage for its lower paid workers are unlikely to want to adjust pay at all levels and so will need to assess whether there is a disparate impact on one gender and whether that is a short term transitional issue or a longer term problem that needs to be addressed.

This imbalance may be further accentuated by the higher annual uplift due to cost of living increases in the case of the living wage (the last living wage increase in November 2013 was 2.68%) than the increases that would otherwise be applied to other pay scales.

Whilst there are many advantages therefore flowing from the living wage scheme, employers should be careful not to simply adopt it for its lower paid staff without carefully assessing and considering the potential impact on other levels of staff, the risk of pay inequalities and finding ways to balance the overall effect on its pay and grading system to avoid equal pay liabilities.

If this is something you are considering, do give us a call and speak to us about managing the employment or procurement and commissioning implications.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.