What is the living wage used by the Living Wage Foundation and how is it calculated?
The living wage, as used by the Living Wage Foundation, is the hourly rate of pay calculated independently to be the minimum that a worker needs to earn to cover the basic costs of living. An employer may choose to pay it, but has no statutory obligation to do so. From 31 October 2016, the rate of the living wage is set at £9.75 an hour in London and £8.45 an hour outside London, reflecting higher living costs in the capital than the rest of the UK. (These voluntary living wage rates should not be confused with the compulsory national living wage, see below.)
Employers can apply to the Living Wage Foundation for accreditation if all their directly employed and contracted staff are paid the voluntary living wage.
The London living wage is calculated by the Greater London Authority's Living Wage Unit and announced by the Mayor of London. The living wage rate for the rest of the UK is set by the Centre for Research in Social Policy at Loughborough University, based on a calculation known as the Minimum Income Standard for the UK. Both the national and London rates of the living wage are uprated annually at the beginning of November each year.
The compulsory national living wage is the statutory national minimum wage rate that must be paid to workers aged 25 and over from 1 April 2016. The rate of the national living wage is initially set at £7.20 per hour. Future rises will be recommended by the Low Pay Commission, with the aim that it will reach 60% of median earnings by 2020. This new rate is not connected to the rate used by the Living Wage Foundation.