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16th November 2020

Voluntary Living Wage

It was announced on 9th November that the Voluntary Living Wage (“VLW”) is being increased. The VLW, also known as the Real Living Wage, is a wage rate set by the Living Wage Foundation and is voluntarily paid by employers. The VLW is typically higher than the National Living Wage (“NLW”) set by Government.

The Living Wage Foundation was set up in 2001 with the aim of increasing workers’ wages to reflect the real cost of living. The VLW is calculated based on a basket of essential goods and services that represent the basic needs of workers and their families, such as housing, food, clothing, council tax, utilities and childcare.

What is the difference between the Voluntary Living Wage and National Living Wage?

The key difference between the VLW and NLW is that the VLW is voluntary and employers can choose whether to pay this wage to its employees or not. Whereas the NLW is a compulsory rate that employers must pay as a minimum. The VLW is completely independent from the Government’s NLW.

Like the NLW, the VLW is reviewed every year. The only difference being the VLW is reviewed in November and not April like the NLW.

The current NLW is £8.72 an hour and employers must pay this as a minimum to their employees and workers over the age of 25. The VLW has recently increased to £9.50 per hour and for those in London to £10.85 per hour, effective from the 9th November 2020 but employers will have six months to implement the new rate of pay.

It should be noted that the VLW applies to those aged 18 or over. Unlike the NLW, which only applies to those aged over 25. The Government sets a National Minimum Wage (“NMW”) for those aged under 25.

What does this mean for me?

Employers may now want to undertake a review of their pay to ensure that their pay rates reflect the real cost of living for their employees and workers. There is no obligation to increase pay rates beyond the NMW and NLW and whether an employer chooses to do so, should be entirely at their own discretion.

An employer may want to increase their pay rates to the VLW to help:

  • Increase motivation within their workforce
  • Incentivise their employees
  • Help with the recruitment and retention of employees; and
  • Differentiate themselves from competitors within the industry

Almost 7,000 employers in the UK voluntarily pay the VLW, including employers within the care industry such as: Aspire for Intelligent Support and Care CIC; Bon Accord Support Services; Home Instead (various branches); Radfield Home Care (various branches) and many more.

If employers do choose to pay their employees the VLW, then they should note that the new VLW came into effect on the 9th November 2020 and therefore should ensure this new rate of pay is in force within the six month implementation period.

If you have any questions in relation the VLW, please do not hesitate to contact a member of the Napthens’ Employment Team.

*All information is correct at the time of publishing. Use of this material is subject to your acceptance of our terms and conditions.

Napthens LLP

Employment Law Specialists

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