Two Joseph Rowntree charities jointly became the first care provider to pay staff the living wage, and staff turnover more than halved in the first year. Shaun Rafferty extols the benefits of treating employees fairly.

In January 2013, the Joseph Rowntree Foundation and Housing Trust jointly became an accredited living wage employer.

We are an employer of more than 500 care staff, and we became the first care provider in the UK to sign up to the living wage.

The moral case for paying the living wage

The way that the UK’s commissioning model for care works, combined with a scandalously low status for this crucial profession, means that low pay and often poor terms and conditions are endemic.

At JRF we are committed to working towards a prosperous and poverty-free UK. We believe that work is, for the vast majority of people, the best way out of poverty.  

Although employment is rising and the economy recovering, we know that:

• 3.7 million children are still living in poverty;
• 21 per cent of all households are in poverty;
• around two-fifths of adults below state pension age are working but still in poverty;
• earnings have fallen across the income distribution since 2008, once inflation has been taken into account.

The fact is that being in full-time employment doesn’t offer a guarantee of a decent living standard if you are on a low income.

The living wage rate outside London is calculated using JRF’s research on the Minimum Income Standard, which is based on what members of the public think is a socially acceptable quality of life. Unlike the minimum wage, the living wage is based on the actual cost of living.

The business case for paying the living wage

If you’re an employer with low margins and an inflexible business model, or you’re reliant on external funding, you might need more than a strong moral argument to increase your costs to pay your staff more.

A century ago, the Rowntree factory was paying all of its staff in York a higher-than-market wage. It wasn’t called a living wage then. Instead it was described as ‘productivity wages’.

The Rowntrees were concerned that their employees had enough money to live on, but the decision to pay well was as much about business as it was about social responsibility.

Over the last two decades, HR practices have evolved considerably. HR professionals and company boards have widely accepted the need to have a stable, well-motivated workforce that feels engaged with their employer’s vision, but people who have insufficient work or income to meet their needs are more likely to suffer ill-health, including depression and anxiety.

In 2014, the Organisation for Economic Co-operation and Development (OECD) reported that poor health in the workplace was costing the UK economy an estimated £70bn per year.

In 2014, Barclays published an excellent report looking at the financial wellbeing of our national workforce. In arguing that HR people really needed to take financial wellbeing seriously, the report said: “Poor financial wellbeing can impact the bottom line – you can’t afford to ignore the taboo of financial wellbeing.”

Anything that has such an impact on organisational performance should really be a primary concern for any employer.

And it's led to real benefits for us. Our staff turnover more than halved in the first year we implemented the change, and has stayed well below sector averages since. This saves money on recruitment and training, and in care you want staff to build long-term relationships with residents – a stable workforce makes this much easier.

Staff value the change and always rate becoming a living wage employer as an achievement that we should be proud of. There’s no doubt that engagement of our lowest-paid staff has improved as a result.

We suspect there have been other benefits and we are taking part in research with two other York employers to look at the whole impact of moving to the living wage, which we’ll publish early in 2016.

In 1914, Seebohm Rowntree, the son of our founder, said: “Employers must be compelled to abandon the false economy of low wages, and the nation need not distrust movements which strengthen the economic position of the workers.”

Challenges of paying the living wage

Paying the living wage has not been without its challenges. It is costly and there’s no getting away from the fact that some of that cost has been passed on to residents in fee increases. However, when we have talked to residents and their families, there has been an understanding of the need to pay adequately and in some cases people have told us that they feel safer with better-paid staff.

When you become a living wage employer, you relinquish the ability to control your lowest rate of pay internally. Unless you have an organisation where everyone is paid the same, it’s likely that you will have a pay structure that functions with differentials. You can’t keep lifting the wage floor every year without affecting these differentials and therefore you have to look at your whole pay structure in a flexible way and for the long term.

But we decided to pay a living wage because we knew it was the right thing to do – and because we suspected that it would improve the wellbeing of our staff and the performance of our organisation. It’s a decision we haven’t regretted.

Shaun Rafferty is chief operating officer at the Joseph Rowntree Foundation and Joseph Rowntree Housing Trust. He is speaking at Civil Society Media’s People and Culture Conference on 16 September – click here to book your place.