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Will Hutton

Will Hutton

Principal, Hertford College, Oxford University and chair of the Big Innovation Centre

Monday 17 Dec 2012
Why it’s important to pay a Living Wage

Why it’s important to pay a Living Wage

There has been increasing discussion recently around the concept of the Living Wage for the nation’s legions of support staff such as cleaners, caterers, security staff and others – helped by the first official ‘Living Wage Week’ held at the beginning of November. 

In it, new hourly rates were announced of £8.55 in London and £7.45 in the rest of the country. This compares to a national minimum wage of £6.19. But why should companies bother, you might ask? Surely paying that extra rate is just inviting more cost at a time when many organisations can ill afford it? 

On the contrary, I believe that there are many clear benefits to a company in paying the Living Wage. Firstly, it is surely the ‘right thing’ to do. The concept of the Living Wage first grew out of a recognition that it is simply not possible for an individual to support themselves and their family to a socially acceptable level on the minimum wage. It often leads to an individual working very long hours across more than one job at unsociable hours – which of course will lead to a deterioration in performance. Working in a fragmented pattern for more than one organisation, such employees often feel little loyalty or engagement with their employers either. So from a moral and as it were humanistic standpoint, it makes sense. 

But there is a compelling business case too. If there weren't, more than 100 organisations would not have signed up to become accredited Living Wage employers. 

At KPMG, we have found that paying the higher rate leads to greater motivation, better performance, lower absenteeism and lower staff churn. For example, turnover among our cleaning staff has fallen by around 40% since we began paying the Living Wage in 2006. 

These benefits can actually lead to cost neutrality or even savings for businesses. Recruitment costs go down and, where such staff are employed through a contractor, better rates can be negotiated as a result. 

Of course, when you show an individual that you value them by paying them more, this can significantly change their outlook. Their sense of loyalty grows, their sense of connection with the business increases. They are simply better motivated to perform well. 

When some of these staff – on reception for example – are the first people your client sees and interacts with when visiting your company, there is plainly a real benefit in them creating a positive impression. 

The interest generated around Living Wage Week, and the support it received from politicians of different parties, shows to my mind that the Living Wage is a concept whose time has come. 

If your organisation is not paying it, I would recommend that the notion is at least given some serious thought. 

Robert Bolton, partner in KPMG Management Consulting and global lead of the firm’s HR Centre of Excellence