Increase in the living wage – AWR implications

This week has seen the announcement that the living wage will increase to £8.55 per hour in London and £7.45 outside of London. The living wage is determined by the Centre for Research in Social Policy and the Greater London Authority as being the amount needed by a worker to meet reasonable living costs.

The rise in the living wage rate is billed as having cross party support and endorsed by both David Cameron and Ed Milliband. This follows a recent study by KPMG which reported that millions of families in the UK are struggling on wages which are at or just above the National Minimum Wage.  However this is a moral issue. The living wage is not a legal requirement and is entirely distinct from the statutory obligation to pay not less than the National Minimum Wage, currently £6.19 per hour for workers aged 21 or above. A recent speech by Ed Milliband has suggested that if labour were to win the next election, preference would be given to firms that pay the living wage in the awarding of government contracts, but in the absence of a study of the increased cost and a consideration of the legal issues, it is not clear how realistic that proposition would be. 

How does this impact on recruiters? Other than in respect of internal employees, the living wage may be difficult to achieve for agency workers as rates are determined by Hirers and market conditions. A recruiter cannot after all pay a “living wage”, if the amount a client is willing to pay does not permit it.

However, the Agency Workers Regulations (AWR) have to be borne in mind. If a client  organisation signs up to the living wage, indicating expressly in public that all staff will be paid at that rate, this could be interpreted as a term and condition ordinarily in force within the hirers business. In that event after 12 weeks of service agency workers supplied to the hirer concerned could be entitled to that rate. By default some recruiters may therefore need to apply the living wage rate where hirers and agency workers fall into that category.  

The principle of a living wage may be supported by politicians, but it remains an ethical and not a legal standard, subject to the point above, and so there is no obligation to pay it to agency workers who do not fall into the category mentioned. Also it remains perfectly lawful for an organisation to pay the living wage to its main staff but also use outsourced labour, or contractors that are not agency workers, for example limited company contractors that regard the hirer as their client and have appropriate contracts in place.

For further information on the national minimum wage, the AWR or contractual models under the AWR, please contact Ravi Murphy at Lawspeed on 01273 236 236