The CIPD’s summer 2023 Labour Market Outlook (LMO) found a rise in the proportion of respondents saying their workplace is now an accredited ‘real’ Living Wage employer.

This year, 35% of workplaces were accredited Living Wage* employers, while the LMO in summer 2022 found that 29% were accredited.

This increase in accreditation is spread across all sectors. In the private sector, the percentage of accredited firms rose from 25% in 2022 to 31% in 2023. In the public sector, accreditation has gone from 47% of employers to 53%, while in the voluntary sector, it has increased from 26% to 31%.

Within the private sector, the percentage of manufacturing and production firms becoming Living Wage employers jumped from 24% to 36%. However, the proportion of private sector service firms becoming Living Wage employers grew by a much smaller amount, from 25% in 2022 to 28% in 2023.

Within the private sector services sector, the largest rise was in the transport and storage sector, with the proportion of accredited firms rising from 24% to 36%. This was followed by finance and insurance, where the share of accredited firms rose from 34% to 38%. The jump in the transport and storage sector might reflect previous challenges in recruiting people to this sector, and a desire to boost the image of the industry.

And size does matter within the private sector. While the proportion of large firms (250 or more workers) accredited increased from 37% to 44% over the past year, the percentage of small and medium-sized (SME) businesses (1–249 employees) accredited only rose from 11% to 15%.

What’s driving accreditation?

So what’s behind this increase in Living Wage accreditation among employers? The most common explanation given by the respondents was that it’s the ‘fair’ or ‘right’ thing to do (42%) a figure almost unchanged from 2022 (43%).

The next most common reason was to improve employee financial wellbeing (32%), a large jump from 22% a year ago. This rise probably reflects concerns about the impact of escalating living costs on employees, especially on low-waged workers. Similarly, there has been an increase in the proportion of employers saying they became accredited to help reduce the incidence or risk of in-work poverty – from 15% in 2022 to 21% in 2023.

Other common reasons were to improve employee engagement (up from 18% in 2022 to 24%), and to improve the employer and customer brands (up from 20% in 2022 to 21%).

By company size, there was no difference between the proportion of large organisations and SMEs signing up to the Living Wage because it was the fair/right thing to do (both 41%). There was a small difference last year when 44% of SMEs gave this reason compared to just 39% of large employers.

Meanwhile, the percentage of both large and SME firms signing up to the voluntary living wage to improve employee financial wellbeing has increased. In 2022, this reason was given by 21% of large firms but has jumped to 37% this year. The percentage of SMEs citing the same reason has gone from 23% to 31% in the period.

However, tackling in-work poverty as the reason for accreditation varied by employer size. For large firms, the proportion rose from 13% to 22% over the past year; among SMEs it rose 14% to 16%.

Similarly, the jump in the respondents citing employee engagement as an explanation was driven more by large companies (an increase from 20% to 29%) than SMEs (a rise from 22% to 24%). By contrast, the increase in the respondents citing a desire to improve the employer and/or customer brand as an explanation was driven more by SMEs (10% to 20%) than large firms (26% to 27%). 

In large firms, the biggest jump has been among those citing they had become accredited to meet tendering requirements for work. While this was just 1% in 2022, it shot to 13% this year.

By sector, public sector employers are just as likely as private sector firms to say that they signed up to the Living Wage because it’s the fair or right thing to do (40% v 41%), or to help reduce in-work poverty (20% both). However, there are stark variations between these sectors for the other most common reasons, which are to:

  • improve employee financial wellbeing (35% of private sector versus 21% of public sector employers)
  • improve employee engagement (28% versus 16%)
  • improve our employer/customer brand (26% versus 12%).

Why are employers currently seeking accreditation?

Among our LMO respondents, 10% say that while their workplace is not currently a Living Wage employer, it’s seeking to become one over the next couple of years.

The main reasons for these employers wanting to become accredited were:

  • it’s the fair/right thing to do (36%)
  • to improve employee engagement (28%)
  • to improve employee financial wellbeing (26%)
  • to improve our employer/customer brand (25%), and
  • to improve employee productivity (22%).

These were the same explanations given by those employers that were already accredited, apart from the desire to boost productivity. Interestingly, only 11% of respondents mentioned this as a reason for working towards accreditation in 2022. This jump may reflect concerns around poor productivity. Firms may be hoping that by offering a higher wage, they can achieve better retention and hence lower employee turnover costs, or an improvement in the quality of job applicants and so on.

Despite the current focus on environmental, social and governance (ESG) issues, just 6% of employers report that they are seeking accreditation because of external pressures from their investors, customers, or clients. A percentage that falls to 3% in the private sector and to 2% among firms based in private sector services.

Implications and recommendations

The survey finds that while most organisations that pay the ‘real’ Living Wage or more are doing so because it’s the right or fair thing, alleviating cost-of-living pressures are now also a key reason for becoming or seeking to become an accredited Living Wage employer.

While few employers want to pay their low-waged workers less, the issue is how can they afford to pay more, especially when the cost of doing business has risen sharply over the past year.

One option is to only pay low waged workers more. The theory is that employers will then be more able to attract and retain better talent, which will then feed through into lower employee turnover costs, improved job satisfaction, higher levels of organisational commitment and better employee productivity.

But for this to happen, workplaces need good people management practices in place. For instance, if pay decisions aren’t fair or transparent, how high wages are wouldn’t matter. Similarly, employers need the right business management practices in place – the right equipment, investment in appropriate skills and so on, to give staff the opportunity and ability to perform. Also important to consider is that while wage bills rise on day one, it will be a while before employers see a return on that investment.

Another option is to focus on improving employee performance across the board. By investing in technology, products, marketing, as well as in people skills and management, you’ll get better employee and company performance. The extra profit generated by higher revenue and lower costs can then be used to increase wages and benefits of low-paid staff.

Again, success relies on people professionals embedding good business and people management practices. But a challenge with this approach is that by the time productivity improves, if the labour market is tight, staff could already have left for more money. These employees may not feel committed or engaged in their work because it takes a while before their contributions are reflected in their wages.

However, these options are not binary. People managers must support senior management when they decide how much to increase pay, in conjunction with how much investment goes into improving productivity.

In terms of policy implications, the UK Government needs spread good practice by helping boost workplace performance as well as to provide tax incentives for productivity investment. It should also explore how tender processes can require employers to pay their people enough to live on.

*The Living Wage Foundation will announce the new rates for its Living Wage the week of 23 October 2023.

The summer 2023 LMO survey was conducted by YouGov on behalf of the CIPD. Total sample size was 2,003 senior decision-makers in the UK. Fieldwork was undertaken between 9 June and 5 July 2023. The survey was carried out online. The figures have been weighted and are representative of UK employment by organisation size, sector, and industry.

About the authors

Charles Cotton, Senior Performance and Reward Adviser

Charles has recently led research into the business case for pensions, how front line managers make and communicate reward decisions, and managing reward risks, as well as the creation of a good practice guide on the annual pay review process. He is also responsible for the CIPD’s public policy work in the area of reward and is a Chartered Fellow of the CIPD.

James Cockett, Labour Market Economist

James joined CIPD in October 2022 as a Labour Market Economist. He is a quantitative analyst with experience in a variety of topics on the world of work including low pay, equality, diversity and inclusion (EDI), flexible working, social mobility, wellbeing, and education and skills. 
James uses both publicly available data, and CIPD surveys to gain insights, with a keen interest in data visualisation. Prior to joining CIPD, James was previously an Economist for the Institute for Employment Studies (IES) where he worked within the policy team undertaking labour market research and evaluations of employment programmes to support people into work. He has also led the design and analysis of several workforce surveys and has presented to several government departments and key stakeholders. James has also worked as a Consultant undertaking evaluations in the area of social policy for public sector clients.

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