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In Focus: UK Living Wage increases by up to 9.8%. What does this mean for your organisation?

Our In Focus series of articles originally appeared in The Leadership Bulletin, a free weekly bulletin for leaders and managers. You can subscribe here.

The beginning of April is always an important time, and not just for those of us who run businesses. The past week in the UK ushered in Council Tax changes, National Insurance increases, and a surge in energy bills. The good news for UK workers on the Living Wage, the minimum payable wage in the UK, is the beginning of April also saw a significant pay rise.

The UK Living Wage was introduced by then Chancellor George Osborne in 2016 as a revamp of the Minimum Wage. In the first year it was introduced, a rise of 50p per hour from the previous minimum wage saw low-pay, full-time workers gain around £910 per year. Six years later, workers are seeing another thousand pound pay bump as the Living Wage goes up to £9.50 for workers 23 and over. Here are the new rates and the increases since last year:

The obvious thing for employers to worry about is the affordability of the pay increase. However, given that paying the Living Wage is mandatory, rather than a choice, that isn’t something I’ll focus on for now. Instead, I think this is a time for employers to ask themselves: what impact does the Living Wage have on our other staff?

Imagine an employee who in 2016, when the Living Wage was introduced, earned £9 per hour. Then, the gap between their pay and the Living Wage was £1.50 per hour, or several thousand pounds per year for a full-time employee. Let’s assume that the £9 per hour employee received a cost-of-living pay rise of 2% per year since then; today, their pay would be £10.13 per hour. What about a new colleague arriving today at an entry-level job on the Living Wage? They would receive £9.50 per hour. What was once a gap of £1.50 per hour between the experienced employee and a new worker would now be a gap of just 63p.

I’m not seeking to make a point about the rate of increase in the Living Wage (which I support), or about the historic cost-of-living increases offered by employers. Nor am I seeking to argue that there should necessarily be significant pay gaps between different members of the team depending on their role or experience. Each situation, and each organisation, is different.

My point is simply this: several years of significant increases in the Living Wage is great for those who receive it, but for those who are paid just above the threshold, the gap between their salary and an entry-level job may have shrunk significantly. This could lead to frustration from longstanding staff. Indeed, in a few more years it is even possible that your longstanding team member in a relatively low paid job will have seen the Living Wage catch up with their salary and find that they are now at the bottom of the salary ladder. This is something employers should be thinking about now as part of their plans to fairly reward committed staff and retain essential skills in their workforce.