Measuring the relationship between the real Living Wage & our employee retention

Recently, together with my Senior team, I’ve been giving a lot of thought to the kind of corporate citizen we (NuServe) want to be. We’re determined that business should be a force for good, and we’re inspired by those companies that are redefining success to include social and environmental impact. We’ve got big plans for 2020!

As a cleaning company, we employ around 600 people, with the majority of those working on client sites where wage levels are, to a large degree, set by the negotiated tender price. Some clients are prepared to pay a little more to ensure those working on the contract receive the ‘real Living Wage’, whilst others, constrained by financial pressures, prefer to pay less, knowing staff will at least be paid the ‘National Living Wage’.

At this point, it’s perhaps worth clarifying a couple of terms.

The Living Wage Foundation sets what has become known as the ‘real Living Wage’. This is a voluntary pay scale that employers choose to adopt (or not) and is calculated against a basket of goods. The wage is therefore higher in London (￡10.75), where the cost of living is higher than in other areas of the UK, where the rate is set at ￡9.30.

The Government sets the ‘National Living Wage’, which is the minimum amount an employer is allowed to pay someone 25 years or older (￡8.21, rising to ￡8.75 in April). This wage is calculated as a % of median earnings (55% rising to 60% by 2024). Whilst I can see the rationale, this seems a rather blunt instrument. How do we know that 55% or even 60% is enough for someone to ‘get by’?

As a Living Wage ‘Recognised Service Provider’ we think it’s right that everyone who is prepared to work hard, is able to earn a fair wage. We’re determined to see the proportion of employees paid the real Living Wage increase, in our business, and across the industry.

Some statistics from our business

As of December 2019, across all our client sites, 51% of the jobs we provide are paid at or above the real Living Wage. That percentage is trending in the right direction, up from 30% two years ago (a 70% increase).

So, what impact has that had on our business?

On those sites that we look after, where the lowest-paid worker receives the real Living Wage, we’ve noticed a 20% reduction in employee turnover. In determining this employee turnover difference, we included only those employees who left our company voluntarily and not because of TUPE etc.

If we include employees who left a site but remained in our employment (perhaps moving to another site), the figure is even more telling, with turnover 37% lower on sites where employees are paid the real Living Wage.

The cost of paying less

We should first acknowledge that the cleaning industry suffers, in general, from high employee churn rates and that wage rate is only one (albeit significant) factor affecting this.

With that said, when employees remain in a role, they develop experience of the site and get to know the customer’s needs and wants. Cleaning providers are also able to move beyond basic skill training and begin developing more advanced competencies. Paying a little more increases the chance of retaining and developing team members so that they, in turn, are able to deliver a better, more consistent service for the customer.

Furthermore, as cleaning companies grow, recruitment is often a challenge. There is seldom the luxury of time to fill vacancies, and ‘normal’ churn means the recruitment process is already under pressure.

Lower pay rates on particular sites will increase this churn, which results in an ever-growing list of vacancies to fill. Now consider that with Brexit looming labour supply is already constrained, and that more jobs are being advertised today at the real Living Wage than ever before. We can only sympathise with the recruiter looking for a team of strong candidates to work at rates lower than are on offer elsewhere.

So, how does this affect the customer? Well, the recruiter, under pressure to fill the role, and lacking a large pool of applicants to select from, is forced to pick someone, often someone that might otherwise have been passed over. Perhaps the recruiter gets lucky and surfaces a diamond in the rough, but more than likely, over time, as the better candidates migrate to better paying jobs, the calibre of the team on the site with the lower wage rates diminishes.

Now, unable to hang on to a strong team, the cleaning company is working twice as hard to keep the client happy, and the client, observing the declining standards, is spending more time than ever involving herself/himself in the management of the cleaning contract. Nobody is happy, not least the cleaners who receive a daily list of issues. The diamonds don’t stick around as the environment begins to take on a toxic edge. Everybody loses.

It’s clear to me that client’s paying a little more to support their Service Providers so that they can pay frontline employees the real Living Wage is good business, and the case becomes stronger each year.

Pay is obviously not the only factor determining the success of a contract. The working environment, management styles, workload, location, shift length and convenient shift times all affect employee retention. For the right job, employees will often accept lower pay than they might get elsewhere. Of course, that doesn’t mean we shouldn’t do our best to uplift their wages.

Mitigating against additional cost

In an ideal world, I’d tell you now that there is always a way to keep everyone happy; that that employees’ wages can be increased, standards improved, and costs reduced.

Certainly, there are many times where we have been able to achieve this. Whether through the renegotiation of specification, a more efficient work plan, training, incentivisation of the team or simply better equipment, we’re able to offset the additional wage costs with a saving in time. Other times though, the last bit of fat has already been shaved off and it’s time for an honest discussion about what you really want to get from your cleaning service, and what’s fair and equitable for the operatives working on your site, often at unsociable times and with sacrifice to family life.

This article is posted from our blog; find it at https://nuserve.co.uk/news/living-wage-makes-good-business-sense.

If you’d like to find out more, or simply want some advice, please feel free to get in touch. You can reach us at [email protected] or on 0203 597 2907.