What is the Real Living Wage in the UK? A Short Guide for Businesses

In today’s competitive UK market, attracting and retaining talent is a top priority for growing companies. While many factors contribute to a positive work environment, fair pay is a crucial component. This is where the Real Living Wage comes in. This article will provide an overview of this important benchmark in the UK, its advantages, and how it differs from government-mandated minimums.

What is the Real Living Wage?

So, what exactly is this benchmark? It is a voluntary pay level calculated on the actual expense of living. It is determined annually by the Resolution Foundation and overseen by the Living Wage Foundation. The calculation considers the price of housing, food, and other essentials. Unlike the National Minimum Wage, this ethical pay standard is not legally binding. It is a choice that employers make to ensure their staff can earn a wage that meets everyday needs. There are two distinct levels: one for London, reflecting the higher living expenses in the capital, and one for the rest of the UK, with the Real Living Wage in Scotland, Wales and Northern Ireland being the same.

Real Living Wage vs. the National Minimum Wage, and the National Living Wage

It is important to understand the difference between a wage that reflects living expenses and the government’s minimum wage levels. The National Minimum Wage (NMW) is the legal minimum hourly pay for workers of school-leaving age. The National Living Wage (NLW), on the other hand, is the legal minimum for workers aged 21 and over. The key difference is that the Real Living Wage (RLW) reflects what people are estimated to effectively need to live, while the government figures are tied to a target percentage of median earnings.

Current and projected pay levels and their impact on employees

The pay levels are updated annually to reflect the changing expense of living. The most recent increase, for 2025, brought a much-needed boost for low-paid workers, helping them to better cope with rising prices. For many employees, this updated pay means the difference between just surviving and thriving. It allows them to afford a better standard of living, reduce financial stress, and participate more fully in their communities. With projections indicating a continued rise in living expenses, a fair wage is more important than ever.

The business case for paying a fair wage

While the advantages for employees are clear, what about for the employer? Research from the Living Wage Foundation shows that paying a wage that reflects living expenses can have a significant positive impact. Over 90% of accredited organisations report positive outcomes, including:

• Improved reputation: Becoming an accredited employer can enhance a company’s brand image, and demonstrate a commitment to ethical practices.

• Increased employee motivation and retention: When staff feel valued, they are more likely to be motivated and loyal. This can lead to lower absenteeism, and reduced recruitment spending.

• Higher productivity: A happy and healthy workforce is a productive workforce. By reducing financial stress, fair pay can lead to a more focused and engaged team.

Many organisations, from smaller companies to large organisations and corporations have become accredited real living wage employers and have seen the benefits, including: Oxfam, Lush, Nationwide, Aviva, Astra Zeneca, KPMG, Linden Accountants, Miranda Double Glazing, Burberry, Liverpool FC, Chelsea FC, Google, and Ikea, to name a few.

Further resources for UK businesses

For growing UK companies considering becoming an accredited employer, there are many resources available. The Living Wage Foundation website provides a wealth of information, including guidance on accreditation, and case studies from other organisations. PayFit also offers further insights into creating competitive compensation and reward strategies.

The Real Living Wage is a powerful tool for employers to invest in their people and their community. By choosing to pay a wage that reflects the true expense of living, employers can create a more just and productive society. For growing companies, it is a step towards becoming an employer of choice and building a sustainable and successful future.