The Living Wage is here to stay

by Guy Stallard

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07 Nov 2012

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UK money

YOU MAY HAVE NOTICED increasing discussion of the concept of the ‘Living Wage' – a rate of pay higher than the national minimum wage that a growing number of employers pay vital support staff such as cleaners, caterers, security staff and others, designed to enable them to afford a basic standard of living.

There are now nearly 100 organisations in the UK that are accredited payers, including all of the Big Four – it's certainly good to see the accountancy profession taking a lead position. With new rates announced at the start of the first ever "Living Wage Week", it feels like the momentum is here to stay.

But for those organisations that have not yet looked at this, what is the case for paying a Living Wage and what are the issues that need to be considered?

KPMG has almost 600 outsourced on-site supplier staff in its UK offices, many of whom are directly serving clients. The decision was made to outsource services such as cleaning, catering, reception and security because these are not the core capabilities of a professional services firm.

A significant benefit of paying the Living Wage is increased staff loyalty on supplier contracts. Comparing current levels with 2006 figures, contractor staff turnover has fallen by 40%. This has had a direct impact on the recruitment and associated training costs on the contracts.

Given the contracts are structured so that KPMG is not directly responsible for contract recruitment costs, we have used turnover data when negotiating contracts with suppliers, so that we are still able to benefit from this impact of paying the Living Wage. Suppliers are willing to run a successful contract with low staff turnover on a lower profit margin than a problematic contract with high recruitment and training costs.

An example of a qualitative benefit of paying the Living Wage is improved customer service from reception teams, and contractor staff want to project the best image of the firm. The work of contractor staff in this area is acknowledged externally through customer and industry recognition. Additionally, our internal facilities helpdesk is now less busy.

Contractor staff are more likely to ‘go the extra mile' and resolve any issues they observe before the internal or external client notices any problems. The calibre, motivation and loyalty of our contractor staff are vital. If these individuals are not motivated, clients and staff do not receive the level of service they expect. All professional services firms seek to deliver the highest-quality service, and we remain unconvinced we would have the same calibre of staff if we did not pay the Living Wage.

But to leverage these benefits, employers must do more than simply pay the additional cash. It is important for firms to consider the way in which services are delivered, and how arrangements can be adapted to deliver value.

In the case of cleaning service delivery, removing the use of desk-side bins and replacing them with central recycling points saves money and means more cleaning takes place during the day, during more social hours.

The delivery model now operates with fewer part-time cleaners and more full-time cleaners; staff who are committed to their roles on the contract. Working with contractors to empower their staff to take on greater responsibility not only improves service levels, but also means less supervision, which reduces cost.

The changes which can be made to delivery models depend on the distinct set of circumstances each business faces. Firms should partner with service providers to use the contractor's expertise in introducing innovative service delivery changes to deliver value.

The support and expertise of suppliers is an important part of making the Living Wage a cost-effective change, and in leveraging the benefit of improved quality in service delivery. Some of the changes and benefits can be immediate, although some take time to implement, as it is not always possible to readily design and deploy new service models.

The Living Wage movement has developed from an initiative that was little understood by business to one that a growing number of employers wish to embrace. Far from an extra expense, it is in fact a mechanism that can help reduce costs to the business, improve competitiveness, and increase motivation.

It is the right thing to do on many levels.

Guy Stallard, head of facilities, KPMG

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