Test of fairness: Paying your workers enough to live on

In this series of articles, we’ve been focusing on the EU PTD. So why are we devoting an article to the living wage when this isn’t specifically required by the EU PTD? 

The short answer is that paying workers fairly and paying them enough to live on are two sides of the same coin. So let’s explore how the EU PTD and living wage agendas converge and why it makes sense to tackle them together. 

1. Pay equity 

The close links between the living wage and the EU PTD are especially evident and relevant in relation to gender pay gaps.  

Evidence suggests that women make up a disproportionate number of the lowest-paid workers worldwide.¹ Paying a living wage could both help close gender pay gaps and meet a fundamental goal of the EU PTD. 

2. Job architecture 

Both living wage commitments and EU PTD reporting are enabled by a robust, well-defined job architecture. As you develop your job architecture for the EU PTD, incorporating the living wage principle into that exercise will help to identify sections of the workforce in need of targeted support to close pay gaps.  

3. Pay transparency in recruitment 

The disclosure of salary ranges under the EU PTD increases the visibility of pay bands for both candidates and the current workforce.  

If your business is already paying a living wage, the result is a transparent pay floor, which would simplify the setting and disclosure of minimum pay ranges and help you to compete against peers for recruits. 

If you’re not currently committed to paying a living wage, collecting the data required for compliance with the EU PTD will help you to assess how current pay rates compare with living wage benchmarks. You can then build this into evaluations of your broader reward framework and reporting requirements.  

4. Pay reporting 

Further crossovers include the requirement for ‘Adequate Pay’ in the EU Corporate Sustainability Reporting Directive (CSRD), which aligns definitions and approaches as Minimum Wage Regulations² differ by country. Alongside the EU PTD, the CSRD increases the need for reliable, globally consistent payroll and compensation data covering pay equity and pay adequacy requirements.  

While some employers might see the living wage as just another extra cost, there are proven business benefits. Improving employee motivation and well-being will likely boost recruitment, retention, and productivity, as well as resilience in your wider supply chain. 

On the flip side, the findings from our latest Global Hopes and Fears Survey highlight the potentially negative impacts of wage and financial pressures. 

Fewer than half of the workers in our survey received a raise in the past year. Those that missed out are markedly less likely to feel satisfied at work. In turn, workers facing severe financial pressures are less trusting, motivated, or candid with their employers. This erosion of trust can be especially damaging at a time of artificial intelligence (AI) transformation as employees are less likely to buy-in to change or feel supported through it.  

Further research carried out in the UK highlights the impact of low pay³ on health and well-being. A living wage would form an important part of the solution, with 65% of survey participants thinking it would improve their quality of life.

Rather than being a cost to manage, paying a living wage is therefore an investment in trust, job stability, and financial well-being, which are critical in creating a healthier, more motivated workforce. 

While there’s a compelling case for paying your workers a living wage as a baseline, there are several practical challenges to address to ensure reward frameworks are agile enough to reflect the real cost of living.

The pay baseline in many countries is the statutory minimum wage. While the minimum wage is legally mandated and set by the government, this is generally a low benchmark, which may not cover all basic needs for a worker and their family.  

Living wage benchmarks go further, calculated on region-specific cost of living to provide workers and their families with a decent standard of living that covers all basic needs.

Minimum, adequate, or living wage?

Minimum, adequate, and living wages all aim to meet basic needs and are sometimes used interchangeably. But they’re actually quite different. 

So how can you meet your commitment to paying a living wage? Drawing on what we’ve learned from our work with clients, the key priorities fall into two parallel strands:

Strand one: Defining and delivering your ambitions 

The first strand centres on determining and delivering your position on the living wage. 

If this is a new commitment, it may take some time to make sure that the pay for all of your workers in all your operating territories is enough to meet living wage rates. But you can still set a target date and develop a roadmap and milestones for achieving them.

The starting point is a gap analysis to identify workers whose pay falls below your commitment. Collecting and preparing a global reward dataset (factoring in local variations to create a consistent dataset for reporting) is essential in assessing current pay rates against a living wage benchmark. This dataset can easily be adapted to analyse both the living wage, as well as pay equity. A key part of both living wage and pay equity analysis is a review of total reward components to determine their treatment, in line with relevant regulations or methodologies.

Then, access a benchmark to compare pay levels within your organisation. Specialist providers, such as WageIndicator Foundation, can supply the necessary benchmark data for markets worldwide. Their database takes account of variables such as location, family size, and the cost of basic necessities, to calculate reliable living wage estimates.   

This analysis identifies workers paid below or close to the living wage, helping to determine the feasibility of living wage commitments and a plan to close any gaps in order to maintain this level of pay. With high inflation in many markets, it’s also important to update living wage levels and the surrounding assessments on a regular basis. Take advantage of external benchmark providers, including WageIndicator Foundation, who release quarterly updates.⁴

Strand two: Aligning fair pay with the living wage

In parallel with meeting your living wage commitments, it’s important to think about how this interacts with equity, fairness, and transparency. 

In our work with clients, we see the objectives can be mutually supportive. For example, opening up opportunities for low-paid workers can help them develop new skills, advance their careers, and raise their earnings. At the same time, however, raising lower-level pay can compress pay differentials further up the organisation, creating new equity risks that need proactive management.

With the EU PTD set to trigger deeper conversations about pay within your organisation, it’s important to recognise that pay forms the foundation of the employment relationship. Unfair pay can quickly undermine trust between employees and employers. Therefore, line managers require comprehensive training and support to help them hold effective discussions about pay rates, especially with workers who may fall below the living wage. They also need to fully understand the pay system itself, and they should be able to explain how the system operates, how it’s applied in practice, and the reasons why some employees may be paid below median levels. This transparency and understanding fosters trust and helps employees feel fairly treated, even in complex pay scenarios. 

There may also be areas of potential conflict between a living wage and equal pay, given that employees doing the same work may have differing individual circumstances. Looking at your job architecture and pay offering through both lenses helps you to make sure you are treating people fairly both in terms of internal equity and financial wellbeing.     

The increasingly close links between paying enough to live on and fair or equal pay underline the importance of going beyond compliance with the EU PTD to look at what’s on employees’ minds when they’re thinking about pay and how to address these issues. The next article in this series takes this holistic approach further by guiding you on how to build pay fairness and transparency into your culture and realise the benefits to recruitment, engagement, and motivation.

Let's talk

You can read previous articles in our Beyond the pay gap series here. If you’d like to discuss any of the issues raised in these articles or learn more about how the EU PTD will affect your business, get in touch. You can find our details below.