Wider Payment of the Living Wage in Scotland – Issues for Consideration

4 The Views of Scottish Living Wage Employers

4.1 This chapter presents the findings from the in-depth interviews with organisations that had implemented the Living Wage. The chapter begins by exploring the perceived benefits experienced by Living Wage employers, before examining the concerns and barriers experienced by these organisations and ways in which these were overcome. It also presents these organisations' suggestions for future action.

Benefits of implementing the Living Wage

4.2 The Scottish Living Wage employers interviewed did not yet have a specific, formal assessment mechanism to monitor the impact once the Living Wage was implemented. Instead, monitoring of the impact was included as part of wider mechanisms used to measure overall staff performance and turnover. Therefore, the evidence of costs and benefits of introducing the Living Wage reported here relies on the perceptions of Scottish Living Wage employers interviewed rather than on objectively quantified measurement of these gains. When asked about their perceptions of the positive impacts of implementing the Living Wage, employers tended to discuss these in terms of the benefits to employees and benefits to their business.

Benefits to employees

4.3 The most commonly mentioned benefit was the salary increase received, which helped employees and their families achieve a better standard of living. Further, among Living Wage employers that tended to use a substantial number of sub-contracted staff, there was also a sense of satisfaction knowing that they will have raised the salaries of many more employees than just directly employed staff.

4.4 Living Wage employers also mentioned that word of mouth from these employees helped to create a more positive working environment within the company. One employer mentioned that they encouraged employees whose salaries were raised to come out and share what kind of a difference, if any, the salary increase made in their life, and communicated that anecdotal evidence to the rest of the staff. This helped employees understand better why the company was taking this step and increased a sense of ownership of the Living Wage scheme within the company.

"The CEO did a blog saying this is why we're doing it; it's the right thing to do. We asked people to tell us some of their stories about what does it mean to you. So we managed to get some really good sound bite stories out of people saying look, I'm now going to benefit from this, this is what it means for me personally. So we shared some of that to make it real."
(Living Wage employer, More than 500 employees)

4.5 A less commonly held view was that employee engagement seemed to increase among those members of staff whose salaries were raised. This was a less typical view, partly due to the fact that employers seemed to prioritise assessing things such as staff retention and turnover, which they felt had a more direct impact on the company as a whole.

"In terms of the catering staff and the staff restaurants, generally and indeed the cleaning staff in particular, those two groups are definitely far more engaged and far more likely to talk to everybody in the firm, rather than be walking about disenchanted with the existence that they have."
(Living Wage employer, More than 500 employees)

Benefits to the business

4.6 The benefits that Living Wage employers mentioned with regards to the company as a whole tended to focus on external benefits and internal benefits.

4.7 It is worth noting that small employers and also a number of medium sized employers felt that implementation of the Living Wage did not benefit the company as a whole due to the very small number of staff affected. This view was echoed by some stakeholders who further added that small and medium businesses would not perceive the benefits in a way that the large businesses would. These stakeholders were of the opinion that indicators such as staff morale, loyalty and engagement may not be as relevant to the small and medium sized businesses as they would be to larger businesses. Also employee satisfaction may be measured through a very different set of criteria where adoption of a Living Wage salary would not necessarily have a critical influence on employee satisfaction.

4.8 The two internal benefits identified by Living Wage employers were the retention of high-calibre staff and attracting more qualified applicants for specific positions. Employers who reported having lower staff turnover since the implementation of the Living Wage felt that this could partially be attributed to paying their employees better. However, they added that paying the Living Wage should be seen as one of a wider range of factors that helped them retain staff, including creating a good working environment and offering employees other benefits. With regards to attracting higher quality staff, an employer from the manufacturing sector felt that paying the Living Wage was going to help their sector attract more qualified young applicants.

"The main thing is the word of mouth from our employees to the outside world, that says, we get paid a reasonable wage, we are happy with it. It's not about our own employees saying, oh yes, they pay us well, what I get is people who come in at a temporary basis or people who are just new into the business, will say, wow, you treat your people pretty well, and the fact that the minimum that anybody gets is at least, at the very least the Living Wage."
(Living Wage employer, 51 - 250 employees)

"Some of the machines we have now are touch screen they need programming, so we need people who understand the electronic side of things, and young people, with their phones and different things, are exactly what we need. […] So, we now have to go to the educators if you like and try and sell manufacturing as a way to go and of course the fact that we are a Living Wage employer helps that as well."
(Living Wage employer, 51 - 250 employees)

4.9 In terms of external benefits, the most commonly cited was reputational benefit, as adopting the Living Wage helped to strengthen or reinforce the positioning of these organisations as ethical and socially responsible businesses. This finding was very much in line with what attracted these employers towards the Living Wage in the first place, and with this being part of wider actions undertaken to become a fair and ethical business.

4.10 Further, some large companies perceived the adoption of the Living Wage as an important opportunity to reinforce their position of leadership in their sector, as they had the scale and the size to help raise awareness of the Living Wage within their markets.

4.11 Some Living Wage employers were sceptical about accreditation, feeling that it did not bring any additional benefits over and above those of adopting the Living Wage. Others thought that accreditation helped improve the reputation of the company, by providing an external validation that can be displayed to clients and customers. These employers liked the fact that both Glasgow City Council and the Living Wage Foundation put the names of all Living Wage employers accredited by them on their websites, which enabled potential clients to confirm that they were Living Wage employers. More exceptionally, some also mentioned that the Living Wage Foundation provided a comprehensive package of information about the benefits of accreditation alongside communication materials, such as Living Wage merchandise and a plaque, to encourage employers to use those in their external communication.

4.12 The second most commonly cited external benefit was the increased likelihood to bid for public contracts. Employers felt that being a Living Wage employer would make a positive impression when applying for public contracts and help them stand out among the competition.

"That was a big thing for us, reputationally we wanted to be seen to do it and […] it assists us when I am bidding for local authority work and I can say, yes, we have got the Living Wage accreditation, everybody who works on our site, sub-contractor or otherwise are paid the Living Wage nationally."
(Living Wage employer, more than 500 employees)

4.13 In the case of Living Wage employers in Glasgow, many highlighted the fact that Glasgow City Council had been a Living Wage employer since 2009 as a factor that influenced their decision to adapt the Living Wage. These employers regularly tendered for Glasgow City Council contracts and wanted to align themselves with the Local Authority to ensure they remained competitive when bidding for contracts.

"The real tacks and bolts of it are the fact that we do a lot of work for this local authority here and housing associations and the like. So, it's important for us to be seen to be giving something back as well."
(Living Wage employer, 51 - 250 employees)

Barriers to introducing the Living Wage

4.14 There was widespread agreement among Living Wage employers that, on the whole, the process of implementing the Living Wage was straightforward, particularly for small and medium-sized companies where a relatively small proportion of staff salaries were uprated. These Living Wage employers felt that having a good sense of their company's financial performance and the relatively small additional cost incurred as a result of the wage increase made the process easier.

"There wasn't really that much involved in it to be honest with you. Because, again, we would know the state of the finances of the company. Ultimately, because it was only one person and it wasn't a great big jump, then I suppose that had to make it simple and straightforward. Because it is just literally a case of, yeah we're going to do this and let's implement it this month."
(Living Wage employer, 1 - 10 employees)

"It wasn't difficult for us, because in essence, the vast majority of our people were already on a Living Wage and so all I had to do was convince my Board to bring a few others, half a dozen, ten people, up into that area and then to start putting our self over as an employer who would go by this Glasgow Living Wage process and they agreed with that."
(Living Wage employer, 51 - 250 employees)

4.15 However, Living Wage employers did identify a range of factors that created barriers or difficulties during the implementation process. These barriers tended to fall under four broad categories:

• Concerns about the financial cost of increasing wages
• Ensuring sub-contractors also paid the Living Wage
• Communicating changes to employees
• Lack of clarity about what is expected as part of Living Wage accreditation.

Financial cost of increasing wages

4.16 Concerns held by Living Wage employers about the financial costs of implementing the Living Wage, prior to undertaking the implementation, were threefold. Firstly, there was a view that the increase in wage costs may have a negative impact on the competitiveness and, in some cases, the viability of the organisation. Living Wage employers expressed concerns that competitors which have not implemented the Living Wage would have a commercial advantage when tendering for public and private sector contracts due to having a lower cost base. This was predicated on the belief that price was, ultimately, the key determinant in awarding contracts.

4.17 However, after conducting internal analysis of the potential financial costs involved, Living Wage employers said that the found that increases in wage costs would not have as significant an impact on their overall costs or ability to offer competitive prices as they had originally assumed. This was largely the result of having a small proportion of employees whose salaries were below the Living Wage. In the case of larger Living Wage employers, the flexibility that came with being a large employer meant that the costs of increasing wages could be absorbed more easily compared to smaller businesses. Furthermore, there was widespread agreement that the strong commitment from the senior management towards the implementation of the organisation played a key role in driving the implementation.

4.18 Secondly, some larger Living Wage employers expressed concern about the potential for a wider inflationary impact on salaries across their organisation. These employers felt that staff whose salaries were at, or just above, Living Wage levels may also seek salary increases as a result of seeing their colleagues receive an increase. There was a perceived need among such employers to maintain differentials between levels of staff, particularly between lower level staff and their supervisors, which led to concerns that implementing the Living Wage would require companies to adjust pay brackets across the whole company.

4.19 Living Wage employers discussed a number of ways in which they addressed this barrier, namely:

• Holding meetings with supervisors to provide details about the rationale for implementing the Living Wage, how it would be implemented and which staff would receive a pay increase: The view among employers was that this approach provided line managers and supervisors with a stake in the process and enabled them to act as a first point of contact for any questions and concerns raised by employees.
• Identifying where pay differentials between different levels of staff became too narrow and increasing wages of the higher level staff to retain a sufficient differential.
• Choosing to implement the Living Wage at an early stage of the financial year so that there would be time to make up for any additional unforeseen costs in the rest of the financial year.

"If you move some people and you narrow the differentials, somebody else will come back and say I think I'm doing a more accountable job, I used to get paid £1 an hour more, I'm now getting paid 70 pence more, this isn't right. So where the differential was completely eroded we didn't put the whole differential back in, we put something in there to say if you're in charge you get a little bit more."
(Living Wage employer, More than 500 employees)

4.20 Thirdly, although employers tended to be supportive of implementing the Living Wage, some were more reluctant to apply it to younger employees. This reluctance was largely based on the fact that younger employees also received significant investment from the company in training and development and that paying younger people at Living Wage levels could make such training schemes untenable.

4.21 Some Living Wage employers also felt there was a lack of clarity about how the Living Wage applies to apprentices and interns. In such instances, employers sought advice directly from the accrediting body (the Living Wage Foundation or Glasgow City Council) on what was expected of employers, when employing interns and apprenticeships. Some larger Living Wage employers said that their concerns were addressed once they found out that apprenticeships and interns were considered separate from the Living Wage scheme. However, it is worth mentioning that this was one concern that did not appear to be resolved for some employers, particularly smaller companies.

Ensuring sub-contractors implement the Living Wage

4.22 Encouraging sub-contractors to implement the Living Wage tended to be a significant concern for Living Wage employers, particularly larger companies. The most commonly experienced difficulties by larger Living Wage employers were:

• the amount of additional time and resources required to manage this part of the implementation process successfully
• scepticism and resistance among sub-contractors due to the commercial impact of applying the Living Wage
• additional financial cost incurred as a result of sub-contractors increasing their prices to cover additional costs of implementing the Living Wage
• ensuring sub-contracted companies pay employees Living Wage rates for the work that is delivered on the employer's premises

"The bulk of the service contracts we've got tend to quote and tender on a price, so if you're moving that from minimum wage to Living Wage, you have to recognise that even if you squeeze suppliers on their margins there will still be a cost increase coming to the business."
(Living Wage employer, More than 500 employees)

4.23 With regards to the approach taken to tackle difficulties around ensuring subcontractors pay the Living Wage, large employers discussed the need to create an action plan to: set achievable goals for sub-contractors; determine a timeline for implementing the Living Wage across all contracts; and identify challenges and ways of addressing these. Living Wage employers acknowledged that implementation was a long-term process and that the attitude of the Living Wage Foundation towards what was achievable within particular timeframes helped to ease pressure on these employers.

4.24 Large Living Wage employers also highlighted the importance of good communication between their business and sub-contractors in helping to facilitate the implementation. Communicating openly at an early stage early was perceived as the best way to take sub-contractors "on the journey" towards implementing the Living Wage. Such employers felt that it provided sub-contractors with sufficient time to adapt, while also ensuring the process was fair and transparent for all sub-contractors. Indeed, one Living Wage employer discussed holding workshops for sub-contractors in conjunction with experts from the Joseph Rowntree Foundation to provide information and "get the message across" about why the company was adopting the Living Wage.

"Essentially, what a lot of [sub-contractors] are fixated on [is that] it's a low margin business that they operate in and they struggle to see the benefit [of the Living Wage]. I created several workshops for all my main contractors to explain to them why it was important to us. In most instances, most organisations get it and they understand and it positions [them] far better when they're applying for local authority work, they get it. But, there are one or two, as I've said, who are still attached to some old school thinking about it is going to push up the payroll cost"
(Living Wage employer, More than 500 employees)

Communicating changes to employees

4.25 Some Living Wage employers expressed concerns about communicating the changes to employees. This concern was predicated on the belief that some staff who receive a salary increase may react negatively, either because:

• employees perceive the company to have been "taking advantage of them" before implementing the Living Wage

"It becomes a double edged sword, those getting it, whilst happy to get it, could well turn round and say, well why have you paid me less for so long then? Whereas the ones just above, not getting anything could potentially go, well why don't I get something?"
(Living Wage employer, 51 - 250 employees)

• employees may lose out on receiving benefits or tax credits, which result in such employees receiving a net loss from the pay increase

4.26 Consequently, some employers did not feel confident in communicating the benefits of the Living Wage to employees and their families in case it "backfired". In order to address this concern, employers felt it best to adopt an iterative approach by going ahead with the implementation and responding to negative reactions as and when they occurred. The main reason that these employers gave for this approach was that assessing the net impact of the pay increase would be difficult due to employees' benefits coming from a whole range of different channels. Employers mentioned that if there were any employees who were concerned about whether they would actually be better off or not, they would put these cases on hold until the employees and the employers were assured of the net gain.

4.27 Among employers who chose to openly communicate with staff about the implementation of the Living Wage, many felt it created a "feel good" factor within the company, as employees had a better understanding of why the company was implementing the Living Wage.

Clarity about what is expected as part of Living Wage accreditation

4.28 Some larger Living Wage employers felt that there was a lack of clarity at the outset of the accreditation process, particularly around compliance requirements. They expressed a need for more information on reporting requirements, the nature of the yearly audits and the impact of having a different financial year to the Living Wage Foundation.

4.29 However, these concerns tended to be addressed through dialogue with Glasgow City Council or the Living Wage Foundation. Both organisations were viewed positively by the employers with regards to the ease of the application procedure for the Living Wage accreditation. Living Wage employers from Glasgow underlined the speed of the Glasgow City Council's application process while the comments of employers accredited by the Living Wage Foundation focused more on how well the Foundation responded to employers' concerns and questions during the implementation stage.

"Well, what we had was information from the council about what the Living Wage was, […]. So, we just addressed the problem, we then had to fill in a form and send it back to the Council, and we got a certificate saying that we are a Living Wage employer and that was it basically."
(Living Wage employer, 11 - 50 employees)

"[The Living Wage Foundation] were supportive, they were pragmatic. [...] I think we felt that actually they're being reasonably balanced in the process that they're trying to follow. And I think I would go as far to say we felt that they were pretty business-friendly, which isn't always the case [with other accreditation agencies]."
(Living Wage employer, More than 500 employees)

Approaches to monitoring the impact of the implementation of the Living Wage

4.30 Living Wage employers were asked how, if at all, they assessed the impact of implementing the Living Wage. Most indicated that they did not have a specific, formal assessment mechanism. Instead, monitoring of the impact was included as part of wider mechanisms used to measure overall staff performance and turnover, which enabled them to identify significant changes in these indicators.

"We have got a monitoring mechanism for staff turnover and customers and employee feelings regarding loyalty and value and then the perceived fairness in terms of pay and conditions, but not something that specifically catches the Living Wage. […] I don't think it's worth the effort because it's not core to our business."
(Living Wage employer, 51 - 250 employees)

4.31 The predominant view among employers was that an assessment specifically looking at the impact of the Living Wage was not required for two main reasons. Firstly, the number of staff whose salaries were increased as a result of the implementation was often fairly low and Living Wage employers expressed doubts about whether an assessment would yield any meaningful results. Secondly, the type of staff whose wages were increased tended to be in ancillary or support roles, such as cleaning or administration, which constituted a small proportion of the payroll and did not have a significant impact on the overall performance of the business.

4.32 A few larger Living Wage companies said that they intended to look at the more specific impacts of the Living Wage in the future, as they felt not enough time had passed to make a sound judgement. One such company added that the only Living Wage specific assessment that they had introduced in their organisation was an auditing mechanism to ensure that their sub-contractors were paying the Living Wage.

Suggestions for improving the implementation process

4.33 Having experienced the implementation process, Living Wage employers were well positioned to suggest ways of improving it. Suggestions made by Living Wage employers covered three broad areas, discussed below: internal processes; guidance and assistance; and help from the Scottish Government or local authorities.

4.34 Suggestions for improving organisations' internal processes included:

• conducting feasibility studies prior to implementation to identify potential risks, devise approaches to address risks and develop an appropriate timescale for implementation
• communicating with all staff to explain the rationale for adopting the Living Wage and to respond to questions or concerns raised by staff
• involving staff as much as possible to make the process less top-down and increase ownership of the Living Wage and the implementation process
• promoting the implementation to customers and clients through using the Living Wage Employer logo and other marketing materials

4.35 Guidance and assistance could be improved by providing more information on:

• dealing with any impact on benefits for people whose salaries would be raised to Living Wage level
• what is expected of Living Wage employers, large businesses in particular, with regards to sub-contractors, specifically:
  • how to implement the Living Wage across contracts, set achievable targets, ensure subcontractors are paying the Living Wage
  • encouraging large employers that have been through the process to share experiences and any lessons
  • communicating to employers that use several subcontractors that the process of implementing the Living Wage is relatively straightforward and flexible in terms of the time period in which the implementation is to be completed
• what is expected when dealing with sub-contractors in order to ensure they meet the Living Wage criteria when doing work on the premises of Living Wage employers
• the employment of apprentices and interns

4.36 Suggested ways of providing guidance and assistance included:

• encouraging dialogue between employers that have been through the implementation process and employers that are considering adopting the Living Wage
• continuing to make the list of Living Wage employers available to the wider public through different communication channels
• raising awareness among recruitment agencies about the Living Wage and what it means to be a Living Wage employer, which, in turn, would encourage agencies to abide by Living Wage principles when sourcing personnel for employers

4.37 Suggested ways in which the Scottish Government or local authorities can support the implementation of the Living Wage included:

• providing more clarity on how the Living Wage rate is calculated and how the businesses should apply the criteria to the different types of staff who work on different types of contracts
• providing more information and evidence on the benefits of the Living Wage for employers, including when tendering for public contracts
• conducting more specific and sector-based analysis of the impacts of the Living Wage which quantify the costs and potential benefits in particular for small businesses, hospitality and retail sectors, social care and child care
• providing financial incentives to sectors which are more likely to employ people below the Living Wage such as the sectors mentioned in the previous point to help absorb the initial financial impact of implementation
• improving communications on how the current level of the Living Wage is set and involving local businesses in the process of determining the Living Wage rate