The Living Wage: Charity sector

“For charities that rely on local authorities or other public sector funders, the key issue will be whether they will increase the funding or do they expect providers to find the additional money through savings in other elements of their delivery”.

Phil Reynolds, Director in Restructuring Services

The Government’s decision to introduce a Living Wage could cost the charity sector an additional £500m by 2020, according to a study published by the Third Sector Research Centre.

The research states that the cost of increasing pay to a minimum of £7.20 an hour would cost the sector about £100m, and the subsequent rise to £9 an hour would lead to an additional payroll cost of £400m.

Increasing the pay rate to £9 an hour would affect the earnings of about 250,000 people – almost three in every 10 employees in the charity and not for profit sector.

This increase will particularly affect charities in the social care sector, where staffing costs currently equate to 60% of turnover so a significant increase in staff costs, may leave some businesses unable to survive.

Where business are directly funded by local authorities service contracts these should be reviewed to ensure there is the ability to recoup these additional costs or to allow early re-negotiation so that decisions can be taken as to whether costs or services need to be reduced.

“Improved national living wage might be a burden on charities that deliver public services such as caring, sector fears”
Third Sector 8 July 2015

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