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Working Toward a Living Wage: Why Paying Employees Well is Good for Business

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Working poverty is a worldwide problem.

For many workers, one job isn’t enough to offer a way out of poverty for them and their families. But businesses flourish when all their employees can thrive and grow—and so, making sure workers ear a living wage fosters growth and financial stability. Thus, companies have an important role when it comes to promoting decent work and addressing work poverty.

Your employees drive your business forward. So if their income impacts their stability, that’s going to impact their productivity and quality of work. Their salary and financial security is directly tied to your company’s success.

Committing to a living wage can help transform lives and your business. There’s much to consider, so let’s explore what a living wage is, its benefits, and how to provide it.

What a Living Wage Is

A living wage is one that affords employees a decent standard of living for them and their families. That includes food, water, healthcare, housing, education, clothing, transportation, and other essential needs, including provisions for emergencies. It’s a wage that helps families achieve financial independence and lead a dignified life.

But providing a living wage is not merely an act of benevolence. The right to just and favorable remuneration was declared in 1948 in the UN Universal Declaration of Human Rights. It was enshrined into international law in 1976. The National Living Wage, first introduced back in 2016, ensures workers over 25 years old earn fair wages enough to fulfill a normal standard of living.

The Living Wage emerged as a response to growing poverty and inequality. A simple yet powerful concept, a living wage raises employee morale and helps them build and maintain a livelihood that meets their needs and the needs of their families.

Is it different from minimum wage?

Living wage has often been confused with minimum wage. But a minimum wage is merely the minimum that an employer is legally required to pay an employee. Minimum wage laws don’t necessarily account for cost of living, price increases, and inflation as a living wage does. And most often, it does not enable workers and their families to meet their basic needs.

Some reasons that minimum wage does not guarantee a decent quality of life include:

  1. Workers’ representatives were not consulted.
  2. The minimum wage was not fine tuned through collective bargaining.
  3. It is not being enforced strictly enough.
  4. It is not adjusted frequently enough to keep up with inflation.

The fact is, minimum wage often falls short of people’s needs. Instead, a living wage should reflect the true cost of living and cover the needs of workers and their loved ones. When workers earn a living wage, their physical, emotional, and financial health improves. The capacity to purchase basic necessities and have health insurance is a significant factor for raising employee morale. Low paid workers won’t feel this security, and will be either unmotivated or will consider leaving the company as soon as possible.

Sunil Nair, CEO of Snowman Logistics Limited states, “Pay them as per their capability and performance, engage them with various programs your company holds, upskill them, and offer job rotation. It’s time we give them the respect they deserve.”

The corporate responsibility to respect human rights is not an afterthought. It’s not charity. Living wage advocates suggest that the concept is the foundation for a successful, responsible, and sustainable business.

Why Providing a Living Wage is Important

It’s quite simple, really.

The answer to finding and securing a reliable workforce lies in providing fair compensation. Few people will stay in a company if they receive low wages.

Of course, providing a living wage is a matter of human dignity and human rights; however, it’s also a strategic imperative for business continuity and a healthy, equitable economy. Thus, the question that remains: why should employers consider raising wages if they are not actually legally required to?

Benefits of paying employees a living wage

The positive impacts of a living wage are numerous, and having your employees be working poor is a recipe for financial disaster. Apart from the moral case of ensuring that your employees can cover their basic costs of living and other necessities, it presents numerous benefits when it comes to your company as well. Below are some of the many national living wage benefits you should consider.

Better quality of work

If you’re running a business, it’s safe to say that you already know fully well how important morale and attitude are when it comes to delivering high quality outputs.

Higher salaries tend to incentivize a culture of higher productivity. That’s because the more valued employees feel, the better their results will be. If you want your business to keep growing and remain competitive, you’ll need to engage, retain, and nurture young talent. Paying workers a fair living wage allows them to focus on their work and reduces the chances of them juggling multiple jobs just to stay afloat.

CEO of Girard Training Solutions LLC Eric Girard says, “It’s a fact that an engaging environment where managers genuinely care about making their people feel respected and valued is a talent magnet.”

Reduced attrition and lower recruitment costs

Imagine working in a place where you feel valued and are fairly compensated.

Chances are, you’ll be less likely to want to leave. Lower turnover rates means less training, recruitment, and administrative costs. You could lose money by not paying employees what they believe they’re worth and can get elsewhere. This is especially true for the younger generation who are increasingly recognizing the power of individual choice.

As Gowri Ram, the founder of Career Alchemy, shares, “In today’s market, the cost of replacing an employee is 100% to 150% of the current employee’s salary for technical positions and over 200% of the employee’s salary for C-suite positions. It really baffles me as to how easily companies undermine their employees’ needs and wants.”

There’s only so much good talent out there. You should do everything to get them on your team—and keep them. And one of the most effective ways to attract these people? Fair pay.

Improved employee relations

Did you know that relations between staff and managers improve by a large percent when employers implement a fair living wage?

A living wage could inspire loyalty and solidarity among and with employees because you’re living up to your commitment to be a responsible employer. It fosters a highly committed, focused team that aligns with your company’s values and delivers stellar output.

Increased competitive advantage

Nowadays, consumers seek out ethical brands and companies that are leading the charge on issues important to them. With social performance in businesses under growing scrutiny, living wages can provide significant reputational benefit.

Narrower gender pay gap

Ever heard of “she–flation”?

It refers to how inflation has a greater impact on women compared to men. That is because more women work in roles with low pay but more spending commitments. By becoming a living wage employer, you’re doing your part to narrow that gender pay gap.

Important Things to Consider

Are you considering becoming a living wage employer and advancing income equity in your workplace and the value chain? These questions would be a good place to start.

Is a living wage really enough?

A living wage is defined as the pay necessary to maintain a decent standard of living.

But what is decent? Are minimum wages sufficient?

Most often, what employers tend to factor into an appropriate living wage are housing costs, essential expenses such as food and utilities, and modest residual for emergencies. But they fail to account for any kinds of savings, retirement, childcare costs, health care, or educational needs that an employee and their family may need.

Do your employees have nuclear families? Are they the income earners in a single parent household? How many children do they have? Are they providing for sick family members or perhaps they have unique, pressing needs that are not adequately addressed?

A living wage is what’s required to reasonably get by. But try considering what a thriving wage would look like and mean for your employees.

Lance Tanaka, the Managing Director & Owner of the Lance Tanaka Group shares, “Companies must also invest in building “sticky” workplaces—listening to employees, anticipating and addressing their concerns, fostering psychological safety and a sense of community, and measuring outcomes. Focusing only on compensation or only on cultural factors won’t stem the tide of attrition. Business leaders must pay constant attention to both.”

Where can you have the biggest impact?

For many companies, providing a living wage can be challenging. It’s not just a matter of employee compensation; the challenge lies in the implementation within their value chain.

It can be difficult for large companies to leverage their influence within the value chain to implement fair remuneration for workers. Start in your own company and use the momentum and learning outcomes in larger conversations with suppliers. Having a living wage mandate could strengthen your partnerships with suppliers and other stakeholders.

What does equitable remuneration look like?

Living wages are only one part of the solution to promoting decent working conditions and dignified lives for employees. Respect, transparency, working conditions, flexible schedules and work locations, and benefits are crucial as well. Take the time to learn employees’ stressors and pain points to determine what kind of support they need. Who knows? You might find that the means are readily available—and at lower costs than expected.

How to Calculate a Living Wage

Figuring out the gap between what your employees earn and what they need is key to promoting and offering a fair salary. It’s best to work with your employees, and using a living wage calculator can help your company find a happy medium. You can use the tools below to calculate local living wage.

  • Basic Family Budget Calculator. The Economic Policy Institute’s Basic Family Budget Calculator helps you determine the income needed for families of different sizes to make ends meet and thrive, not just survive.
  • Living Wage Calculator. Created by Dr. Amy Glasmeier and the Massachusetts Institute of Technology, this calculator allows you to estimate the living wage within your community. Simply enter your location and you’ll see living wages for families of various sizes in your community, how your local living wage compares to the minimum wage, and typical wages for a number of jobs in your community.
  • Self Sufficiency Standard. The Center for Women’s Welfare has a map of each state’s self sufficiency standard, which is the amount of income necessary to meet basic needs.

Simple Ways to Get Started on Being a Living Wage Employer

Careful financial planning is key to successfully implementing a living wage. Since the living wage increases more frequently than the minimum wage, forecasting is important to sustain it.

A subsistence wage is not enough. Providing a living wage is a values based commitment to your employees. So it’s important to uphold it. It should be something you can maintain as they recalculate the living wage. Keep in mind that once you commit to it, it’s not something you can just take away. To move things forward, it is crucial to take action. As a business owner, you’re responsible for setting the standards and responsibilities for yourself and how you choose to conduct your business.

Here are some ways to get started on becoming a living wage employer.

Avoid unpaid internships

The existence of unpaid internships is a problem that needs to be addressed. Unpaid internships are ways for employers to reap the benefits of the young creative minds of our younger generation without any cost. Young people from lower income families would have more opportunities to take on internships if they receive some form of financial support.

As much as possible, ensure your internships are all paid. It’s an invaluable opportunity for young people to gain knowledge, skills, and experience. With lack of compensation, you risk missing out on exceptional young talent.

Reevaluate your wage policy

Create a framework for fair compensation. The principles in your policy must endorse your commitment to paying employees a living—or better yet, a thriving—wage.

For starters, you can provide employees with a total remuneration package that meets or perhaps even exceeds the legal minimum wage standards and in line with industry standards in which your business operates. Be firmly committed to giving your employees a living wage and ensuring they can meet their daily needs.

Then, make sure you regularly check whether or not you are paying your employees a living wage by auditing compliance against your framework or policy. Here are some things that you should check to ensure the implementation of a living wage in your company:

  • Fixed and livable compensation is attainable without the need to work an excessive number of hours.
  • Your payroll processes deliver employees’ full pay correctly and on time, every time.
  • There are no issues of unequal pay or gap between genders.

You are free to add more criteria depending on your objectives and needs. By using these thresholds to assess whether the fixed compensation paid to your employees meets your living wage standard, you can ensure that your employees are well compensated and satisfied. Happy employees create thriving businesses.

In line with this, be clear with your employees about their salary. Global Learning & Development Consultant at Lenovo Joe Scarfone says, “The future of work is more than just how we work, it’s about how organizations treat their people. Start treating them with respect and give them the information they need.”

Engage stakeholders

You might not know it but your company’s stakeholders have a critical role to play when it comes to providing fair living wages for your employees.

Of course, it is not up to your business and community alone to address such a globally significant issue. There is also a strong need for governments to introduce policy reforms and market incentives to ensure that the national minimum wage supports living, if not thriving, wages. Raising pay for low earners is an effective tool that a government may employ to stimulate the economy.

Investors, too, have a crucial role in holding companies accountable. They could do this by putting living wages at the crux of their environmental and social criteria. That offers companies a measurable tool to quantify social impact to stakeholders, thus creating a powerful intervention in the process.

Follow a living wage roadmap

Following the living wage roadmap helps guide you through the process of providing living wages for your employees. There are five steps your business can take to transform your approach when it comes to salary and compensation:

  1. Identify the living wage. The first step is to identify the living wage in the areas that you’re working in. Find different ways to identify a reliable, credible benchmark for the appropriate wages.
  2. Measure the wage gap. Next, you should compare your current wages with the benchmark to understand the size of the wage gap. It would also be helpful to compare it to the minimum wage and other relevant benchmarks.
  3. Verify if the calculation of living wage gaps is accurate. Verifying the data and information you have gathered is crucial for building trust among your management, employees, and other stakeholders. With a clear understanding of the wage gap, businesses can explore ways to close them.
  4. Close living wage gaps. Four main areas to consider when closing wage gaps are facility performance, employment practices, procurement practices, and the broader environment (e.g. social safety net level, access to more support, or social dialogue). Understanding how these contribute to wages and pinpointing areas of deficiencies could point you in the right direction.
  5. Share what you have learned. More and more companies are working toward a living wage. Sharing and learning from their experiences or your own creates a virtuous cycle that improves livelihoods and creates resilient, socially impactful, and inclusive businesses and communities.

The Transformational Power of Living Wages

Yes, it’s true, managing the bottom line—reducing costs, maximizing profit, and whatnot—is a huge part of running a business. But do not forget that lives are impacted in the process.

All of us need a living wage in order to live, not just survive. It’s right there in the word. And no job should be without dignity. Paying less than a living wage is exploitative, keeps people locked in poverty, makes them dependent on charity, makes them desperate—and that, especially in current times, can result in mounting uncertainty and business risks.

As an employer, you should believe that your workers deserve to earn a living wage and act upon that. Fair pay brings benefits not just for families, communities, and the economy, but also your company itself. Well paid workers are happier, loyal, productive, and reliable workers. So if your company has talented people, offer a living wage. Raise living standards by ensuring that your employees earn enough to lead a dignified life. Turns out, it pays off.

Increasing employee salaries is not just a move to make them happier. It’s an investment toward a more productive, high quality business. It’s time to rewrite the narrative. Living wages are not additional costs to a business; they are a measurable and tangible contributor to sustainable business success.

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