How to keep employees happy on minimum pay rates

Rocketing inflation and the cost-of-living crisis have put pay firmly in the spotlight. But, when budgets are tight, employers must get creative to ensure staff on minimum pay rates are happy and motivated.

Recent trends in pay suggest that both employers and employees are struggling to make ends meet. Analysis by the Living Wage Foundation, Employee jobs paid below the real living wage 2023, published in February 2024, found that 3.7 million UK jobs paid below the real living wage in April 2023. This is 200,000 more than a year earlier and equivalent to one in eight jobs.

These numbers may be boosted further if more organisations choose to opt out of the real living wage. This year, Brewdog and Capita have announced they are abandoning the real living wage following two years of 10% increases in the rate.

This means that rather than pay a minimum of £12 an hour (£13.15 in London), employees aged 21 plus will, from 1 April 2024, receive £11.44 an hour under the national living wage.

Wage pain

Stepping away from this financial commitment can have serious implications for employee relations. Productivity and engagement can plummet, while staff turnover rockets as employees seek out higher pay.

It can, therefore, be very difficult for employers that have to opt out of the real living wage, says Vickie Graham, business development director at the Chartered Institute of Payroll Professionals (CIPP). “Any move like this must be communicated well, with plenty of focus on the other benefits that employees receive from the organisation,” she explains.

Fairness is also essential. The strategy needs to be carefully thought through so that employees on lower pay rates do not feel they are taking the brunt of tighter budgets, says Matthew Gregson, executive director at Howden Employee Benefits and Wellbeing. “Reward must be fair and competitive,” he says. “There may be some higher roles receiving more but employers need to strike the right balance between pay, benefits and other initiatives such as wellbeing. What’s right will depend on needs and expectations: a lower-paid employee won’t want a significant part of their package spent on benefits if this takes cash out of their pocket.”

Pay creativity

As cash is king for employees on minimum pay rates, organisations may want to explore ways to boost its value. Earned wage access or salary advance schemes, which allow employees to drawdown money they have earned before payday, could be worth considering.

These schemes are popular in sectors such as retail, the gig economy and the NHS, and while there are fees for taking pay early, these are small and could be borne by the employer.

They can make a big difference to low-paid staff, says Graham. “They can help employees manage cash flow,” she says. “Evidence suggests advances are used for incidental costs such as a car repair or new boiler, although we would always encourage employers to provide financial awareness training alongside. Some platforms include budgeting tools, which is good too.”

Bonuses are another option for employers with tight pay budgets. The potential for an extra payment can incentivise employees but employers must think carefully about the structure of any bonus scheme, says Helen Hargreaves, head of payroll at training firm MBKB Group. “They can be an expensive option where budgets are tight and, if they’re only awarded to employees for achieving certain targets, there’s a risk of them becoming divisive,” she explains.

One way to balance the books while also motivating employees is to link bonuses to revenue. John McLaughlin, partner, chief commercial officer, Europe, Middle East and Asia (EMEA) and UK at Aon, explains: “This encourages performance but it’s also easier to fund as a percentage of any profit goes to employees.”

Benefit bonus

Employee benefits are an important part of the mix for employees on low pay rates but employers must be mindful of how different products will be perceived. As an example, Gregson points to a generous private medical insurance scheme. “For a low-paid employee who never has to claim, this simply equates to a higher tax bill,” he explains. “Organisations should look instead for benefits that help employees’ money go further.”

A good example of this is a discounts scheme. As well as offering money off big-ticket items such as holidays, these also help with discounts for the weekly supermarket shopping. “These work well when staff can get money off things they’re already buying,” says Hargreaves. “But it’s also important to have good communications around it to really bring the discounts to life.”

For example, MBKB Group has a league table connected to its discount platform, showing the savings that are possible but also encouraging conversations among employees about where they are snagging discounts.

Health cash plans are another option for organisations wishing to help employees with their everyday wellbeing expenses. A snapshot survey from Health Shield in December 2023 across 564 employed people, found that 46% of those earning less than £25,000 had cancelled routine healthcare check-ups.

Organisations should also pay close attention to the extras included on other benefits such as life insurance and group income protection. For example, an employer could deliver more financial benefit by introducing a cash plan and a small amount of life insurance, then by offering a pay rise of the same value, says Gregson. “This might cost £120 a year but would give employees access to benefits such as a virtual GP, wellbeing programmes and money back on dental and optical checkups,” he says. “A pay rise of the same value would be around 6p an hour.”

More than money

Although there is more focus on pay at the lower levels, organisations also need to be mindful of the other elements that can feed into the employee value proposition. “Being able to work from home can be priceless for some employees,” says Hargreaves. “Even something as simple as a recognition platform can help people feel appreciated and valued.”

Other benefits that can help to keep employees motivated include flexible working, career development and even the organisation’s philosophy. For example, in line with its view on activism, outdoor clothing company Patagonia will pay bail for any employees arrested during environmental or social justice protests, says McLaughlin. “It’s about creating a culture where people feel they belong,” he adds. “Organisations should look at what they do well and highlight these superpowers.”

But, as well as looking inward, organisations also need to build good relations with employees. “The best thing an employer can do is ask employees what they want, especially when budgets are tight,” adds Gregson.

This communication is equally important once the package is in place. “Organisations must highlight all these additional benefits and their monetary value,” says Graham. “Where money is tight, it can make a big difference.”

Understanding what motivates them, and shaping the employee value proposition to their needs and expectations, will help to build workplace loyalty that goes beyond a minimum wage.