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Will living wage rises deter companies from signing up?

The voluntary living wage rate (separate to the National Living Wage) has risen to £8.45/hour, from £8.25

Companies may choose not to sign up to the voluntary living wage following its rise, according to Angela Wright, senior lecturer in human resource management at Westminster Business School.

The living wage is independently calculated each year based on what employees and their families need to live, and is separate to the National Living Wage. The new rate is £8.45 per hour, up from £8.25. In London the rate rose by 35p to £9.75 an hour. Nearly 3,000 businesses are already signed up to the scheme, including IKEA and EDF.

Wright explained that the companies that have already signed up had a low number of workers affected by the pay rise. “Recent research commissioned by the Living Wage Foundation shows that most organisations paying the voluntary living wage had low numbers of people earning at less than these rates,” she said. “For companies and sectors that target the legal minimum pay for vast swathes of their workforces, there are some very real challenges they will need to overcome because of these rising rates."

Wright warned the rise could pose "a real challenge to employers in low-paying sectors such as retail, caring and hospitality".

"While there are employers in those sectors who have agreed to pay the minimum pay rates of £8.45 outside London and £9.75 an hour in London, whether or not organisations will agree to pay these rates will in large part depend on the proportion of their workforces currently earning at least these levels," she added.

However, Pernille Hagild, country HR manager for IKEA UK, explained that there are strong business arguments for introducing the voluntary living wage, which IKEA pays.

“Introducing the real living wage is not only the right thing to do for our co-workers, but it also makes good business sense,” she told HR magazine. “This is a long-term investment in our people based on our values and our belief that a team with good compensation and working conditions is in a position to provide a great experience to our customers.”

A recent report by the Living Wage Foundation found that paying the living wage has various positive impacts on businesses. Of those paying the living wage, 72% said they saw a positive effect on brand reputation, 60% saw a positive effect on manager/employee relations, and 43% said employee morale and productivity had improved.