There are no current international laws or conventions on living wage or living wage calculation. Conventions that exist on minimum wage are the following:

• ILO Protection of Wages Convention, No. 95 (1949): The convention establishes that wages must be paid in legal tender at regular intervals and sets out other requirements for fair pay processes for workers.
• ILO Minimum Wage Fixing Convention, No.131 (1970): The convention requires ratifying States to consider the needs of workers and families in establishing a minimum wage (Article 3).
• ILO Minimum Wage-Fixing Machinery Convention, No. 26 (1928): The Convention itself does not refer to the needs of workers and their families, but the accompanying Recommendation R30 considers that “For the purpose of determining the minimum rates of wages to be fixed, the wage-fixing body should, in any case, take account of the necessity of enabling the workers concerned to maintain a suitable standard of living.”

Around half of all Member States have ratified ILO Convention No. 95 and over 50 have ratified ILO Convention No. 131. Countries that have ratified one or both of these conventions should have adequate legal instruments in place to implement them at the national level. This, however, does not ensure that legal protection for workers is of equal efficacy — or equally enforced — across all countries.

In addition to the ILO conventions, the International Covenant on Economic, Social and Cultural Rights (ICESCR) also incorporates State obligations that are relevant to living wages. Article 7 states that remuneration should provide workers with a “decent living for themselves and their families”, including a “fair wage”. In elaborating on State obligations under this provision, the ESCR Committee has stressed that the notion of a fair wage is not static, noting that “[f]or the clear majority of workers, fair wages are above the minimum wage.” Again, countries that have ratified ICESCR, should have measures in place to implement this international treaty at the national level.

In June 2022, the ILO adopted a resolution at the 110^th Session of the International Labour Conference calling for strengthened cooperation on contributing to a better understanding of living wages and to provide assistance to Member States, upon request.

The UN Guiding Principles on Business and Human Rights (UNGPs) set the global standard regarding the responsibility of business to respect human rights in their operations and across their value chains. The Guiding Principles call upon States to consider a smart mix of measures — national and international, mandatory and voluntary — to foster business respect for human rights.

Companies are increasingly subject to non-financial reporting and due diligence obligations in the jurisdictions in which they operate, which often include disclosures on their performance. There are several high-profile examples of national legislation that specifically mandate human rights-related reporting and other positive legal duties, including the United Kingdom Modern Slavery Act 2015, Australian Modern Slavery Act 2018, the California Transparency in Supply Chains Act 2010, the French Corporate Duty of Vigilance Law 2017, German Act on Corporate Due Diligence Obligations in Supply Chains 2021 and the Norwegian Transparency Act 2022.

Also, in 2021 the Netherlands submitted a Bill for Responsible and Sustainable International Business Conduct, and the European Commission announced its Corporate Sustainability Due Diligence Directive (CSDDD). This Directive is likely to come into force between 2025 and 2027 and will make human rights and environmental due diligence mandatory for larger companies. Crucially, the draft EU CSDDD Directive positions the explicit safeguarding of “adequate living wages,” stating that companies must ensure an adequate living wage, including in their supply chains. In May 2022, a collective of 64 companies, investors, and initiatives published an advocacy letter in support of this provision, calling on the EU and Member States to ensure that living wages and living income are included as a human right in the final Directive.

These mandatory disclosure and due diligence laws require companies to publicly communicate their efforts to address actual and potential human rights impacts, including the withholding of an adequate living wage. Failure to comply with these obligations leads to real legal risk for companies.

Many risk factors contribute to very low wage levels for workers, including but not limited to:

• Lack of minimum wage laws and attempts by some Governments to keep wages low so they are competitive for international business means that low wages are the norm for many workers. Legislations related to minimum wages and remuneration do not guarantee the provision of living wages.
• Weak legal enforcement of labour laws, such as those on wages, compensation and working hours, can lead to overall wages being inadequate.
• High levels of unemployment weaken workers’ negotiating power and can lead workers to take jobs that do not have adequate wages for themselves or their families in order to have any income at all.
• High levels of informality whereby if companies either operate in the informal economy or are legally registered but hire workers informally, their workers are at a much higher risk of being paid very low wages and in most cases not being paid a living wage.
• Widespread poverty in a country or region can contribute to low wages, as companies can take advantage of the low level of income in the area and pay workers less.
• Lack of social security and non-cash benefits, such as a lack of access to affordable child-care or healthcare, increases the expenditure of workers thus reducing the proportion of their wages that can be spent on other items such as food, housing, education, transportation or leisure activities.
• High levels of inequality within a region can contribute to low or unstable wages as average wages may seem adequate, but those at the low end of the wage spectrum are disadvantaged.
• Asymmetries of power and information in global supply chains mean that suppliers typically have fewer options and less decision-making flexibility than their buyers. Over the past four decades, a relatively rapid transition to global sourcing has seen supply chains rely on a business model that benefits from maintaining low wages and inadequate regulation and enforcement.
• Complex, disparate supply networks with multiple intermediaries and multiple companies purchasing from a single supplier require a high degree of buyer coordination to address wages. There is also the concern on whether such coordination violates antitrust laws. The complexity of such networks reflects the potential challenges of ensuring a living wage.
• Social dialogue, including collective bargaining, is not used effectively everywhere, meaning that workers lose an important way of increasing wages. Social dialogue is central to ensuring that pay is calibrated to the needs of both workers and supplier enterprises. Social dialogue is also vital for keeping wages current with inflation and changes in economic circumstances.

Working poverty caused by low wages is a global issue and prevalent in many different industries. The two industries below have been chosen as examples, as there is a wide range of research available as well as actions that businesses in those industries can take to improve the wages of their employees and supply chain workers. To identify potential risks related to low wages for other industries, companies can access the CSR Risk Check.

The agricultural industry is vulnerable to poverty wages for workers due to the seasonal nature of work, high prevalence of informal or illegal workers, and the remote nature of a lot of agricultural work, which leaves workers exposed to exploitation and removed from sources of remedy. According to the Global Living Wage Coalition, the concepts of a “living wage” and a “living income” are particularly pertinent when looking at the agricultural industry. While both are about achieving a decent standard of living for households, the idea of a living wage is applied in the context of hired workers (in factories, on farms, etc.), while living income is applied to the context of any income earner, such as self-employed farmers.

Many campaigns and initiatives exist to promote both living wage and living income for agricultural workers, such as the Fair-Trade Foundation and the Living Income Community of Practice.

This industry has traditionally been highlighted as one that is rife with human and labour rights violations, including low or withheld wages. Due to COVID-19, in 2020 and 2021, many garment workers have received reduced wages due to cancelled orders, or in some cases have not been paid at all. In response to these risks, the UN Global Compact endorsed a call to action — the COVID-19: Action in the Global Garment Industry — convened by the ILO and coordinated by the International Organisation of Employers (IOE) and the International Trade Union Confederation (ITUC), and including brands and manufacturers, workers and employer organizations, and Governments. Examples of other campaigns and initiatives that aim to improve the wages and working conditions of garment workers include ACT, Labour Behind the Label and Fair Wear Foundation.

Workers in the industry are vulnerable to low and inadequate wages for several reasons, including the high sensitivity to economic factors such as the price of clothing in target markets and a lack of strong labour right enforcement in garment-producing countries in South-East Asia. Furthermore, many garment workers are women and home-based workers, who are usually paid less than their male counterparts.

This section outlines due diligence steps that companies can implement to promote living wages in their operations and supply chains. The described due diligence steps are aligned with the UN Guiding Principles on Business and Human Rights (UNGPs). Further information on UNGPs is provided in the ‘Key Human Rights Due Diligence Frameworks’ section below or in the Introduction.

While the below steps provide guidance on living wages in particular, it is generally more resource-efficient for companies to ‘streamline’ their human rights due diligence processes by also identifying and addressing other relevant human rights issues (e.g. child labour, forced labour, discrimination and freedom of association) at the same time.

Building on commitment and support of senior leadership, businesses can develop policies on living wages that require their own workers — regardless of their employment status — to be paid a living wage and can also require or encourage suppliers to pay a living wage to their own employees. In some countries, businesses can commit to becoming ‘Living Wage Employers’ and align their policies and practices to guidance from living wage authorities, such as the Living Wage Foundation in the UK or Living Wage for US in the USA. Unilever has been a Living Wage accredited employer in the UK since 2021, and since 2015 has achieved its goal to pay a living wage to all employees by 2020. Unilever also committed to ensuring all workers who directly provide goods and services to Unilever earn at least a living wage or a living income by 2030.

Living wage policies should be clearly identified in public policy documents to ensure transparency and accountability. For instance, in 2020, L’Oréal Group made two commitments regarding living wages, which are reflected in policy documents and programmes (see Case Studies).

Businesses may also consider aligning their policies with relevant industry-wide or cross-industry policy commitments on wages and benefits, for example:

• Ethical Trading Initiative (ETI) Base Code
• Responsible Business Alliance (RBA) Code of Conduct
• amfori BSCI Code of Conduct
• Fair Labor Association (FLA) Code

Assessing the actual and potential impacts on wages in operations and supply chains can be difficult as a living wage has many tangible and intangible impacts that are largely felt outside of the work environment, such as employees’ ability to pay for healthcare or education, potentially for several dependents. Social security schemes play a crucial role in protecting against ill-health, poverty, inequality and social exclusion. Yet they are often under-developed (in scope and/or level of benefits provided) in countries where very low wages are prevalent.

In order to do an impact assessment on wages, businesses should consider taking the following steps:

• Determine the definition of a living wage: As part of the assessment of actual or potential impacts on employee wages, it is important for companies to understand that the concept of a living wage is different from common compensation reference points, such as external competitiveness and industry standards, as well as the underlying principles and processes for determining minimum wages in many countries. This process will involve determining the elements of the base compensation and assessing wages against the living wage benchmark. For successful implementation of a living wage programme, it is, therefore, important to have a clear definition of a living wage, as well as a list of countries and categories of workers that will be included in the programme.
• Assess the gap between current basic pay and living wages: Companies should then map the current pay levels for all workers and all types of contracts (current salary levels of full-time employees, part-time and temporary workers). In addition, the various components of the compensation package (wages, benefits, Government or employer-provided social protections) must be identified and an analysis done to determine which elements of compensation can be included in the compensation that will be compared to the living wage benchmark. Assessing gaps between current pay and what would be a living wage should be done for employees in each country of operation and — as part of a commitment to promote a living wage in supply chains — in countries where suppliers are based. In that case, companies can prioritize key suppliers or suppliers that present high risks of impacts.

The assessment should also consider the causes and consequences of the wages received by workers — for instance, are the wages low because of unsustainable procurement practices that keep wages low, or because of industry practices and lack of incentives to address low wages? Such assessments may require engagement and input from social partners such as trade unions and worker representatives, as well as stakeholders and suppliers.

Countries such as the UK and the USA have national and regional living wage calculations that businesses can align with, but many countries do not have such a reference. In these cases, businesses can, as a first step, identify a reliable external partner who will provide the living wage data for relevant locations and guidance toward paying workers a living wage. Organizations such as the Global Living Wage Coalition, BSR, Fair Wage Network, Fair Wear Foundation and Wage Indicator provide living wage data across multiple countries, and to a certain degree, implementation guidance. Examples of country-specific organizations include the Asia Floor Wage Alliance, Living Wage Foundation UK, Living Wage New Zealand and the MIT Living Wage Calculator.

Of course, it is not enough that workers are, in principle, paid a living wage. Those wages need to be protected from unauthorized deductions, excessive fines, limited use of payment in kind, delayed payment and bankruptcy. Otherwise, there is the risk that the company may try to claw back the gains achieved in introducing a living wage. This is a critical part of the broader context that should also inform the company’s wage policy.

Following this assessment, any gaps identified between the pay grade and the living wage benchmark should be addressed by the location-operation by way of a wage adjustment work plan, including timelines, to align employee compensation levels with those of a living wage — see next due diligence step.

To take action on living wages, companies should develop an implementation plan to increase wages to meet or exceed a living wage. Specific steps can include:

• Developing internal management procedures for implementation: Following gap assessment, companies can develop internal management procedures for implementing the living wage programme. The living wage programme would ideally be integrated into processes and procedures that already exist within the company for reviewing and setting compensation levels around the world. Implementing a living wage programme can be achieved through a centralized process, which may involve a cross-departmental working group.
• Raising awareness: Training on living wage programmes can ensure effective implementation. Training materials may include a detailed focus on the specific processes and milestones necessary to successfully implement the programme. This should include specification of the departments and functions responsible for gathering and distributing the living wage data to the assessment teams, the timing and processes by which the assessment will take place, the procedure for the assessment team to lodge questions and comments, the framework for creating the wage adjustment plans and securing the related approval processes, and the vehicle for reporting the results of the assessment to internal stakeholders.
• Engaging with social partners in living wage discussions to ensure the successful implementation of a living wage programme. Companies should engage with trade unions and acknowledge the role of social dialogue in the wage-setting process. For social dialogue to be effective, it is important to have a solid foundation of respect for the fundamental rights of freedom of association and the effective recognition of the right to collective bargaining.

As well as taking action within their own operations, businesses can take the following steps to promote living wages through supply chains:

• Engaging with suppliers to work towards increased wages for workers in the supply chain. Some companies have commitments to work with their suppliers to ensure the provision of living wages to supply chain workers. One of the supplier engagement strategies that businesses could consider is helping suppliers improve their productivity to ‘compensate’ them for the additional labour costs they may incur in paying living wages. This may include adopting and/or financing new technologies to improve production efficiency and operationalizing new production techniques (e.g. through training).
• Improving purchasing practices by empowering and training procurement teams to adopt sustainable practices that will impact their suppliers’ capacity to advance decent work. Close engagement and collaboration with procurement colleagues will enable a better understanding of concerns in relation to how purchasing practices can affect wage levels, and also how purchasing decisions can affect outcomes for workers in supply chains. Technical elements will need to be covered, such as open-book costing, labour-minute costing and ring-fencing labour cost, to ensure that commercial functions can effectively support public commitments to achieving a living wage in the supply chain. Clarifying purchasing practices that can be deployed to support joint work with suppliers to raise wages, as well as mapping, consolidating and shortening supply chains, may be crucial to living wage efforts. Additionally, companies can increase leverage with suppliers through longer-term buying commitments and defining an approach to equitable cost-sharing.
• Promoting freedom of association and collective bargaining to help involve workers in setting living wage levels. Social dialogue allows workers and employers to identify a pathway towards a living wage together. While conflicting expectations may arise, social dialogue can help by delivering a compromise based on gradual but continuous increases of wage levels. Social dialogue also promotes and protects the effective enforcement of a living wage. This includes, but is not limited to, monitoring the implementation of wage levels agreed upon through a social dialogue process.
  • Where freedom of association and collective bargaining are not restricted in law, a company could work with suppliers and business partners to uphold the right to organize and bargain collectively. An example of companies working with trade unions to increase wages in supply chains is a collaboration between Inditex and IndustriAll in Bangladesh.
  • Where legal restrictions make it impossible or very difficult to organize and/or bargain collectively, companies may choose to establish alternative mechanisms (such as workers’ committees in which the workers select their representatives) for their employees and encourage their suppliers to do likewise. Workers’ committees do not have any of the rights and protections afforded to trade unions, and hence do little to support the empowerment of workers. Nonetheless, where the alternative of organizing does not exist, the participation of a workers’ committee, which is as independent as possible from management control, could provide workers with a voice in defining living wages.
• Coordinating efforts with industry groups, workers’ and employers’ organizations and civil society to take collective action and advocate for higher and stricter minimum wage laws, and where possible a living wage. Examples include the Business for Inclusive Growth Platform, a coalition led by the OECD, or the work of the Fair Labor Association and their recent letter to the Tamil Nadu authorities on behalf of companies like Ralph Lauren, Gap and VF Corp.

Performance on living wages can be tracked by monitoring the wages paid to employees and workers in supply chains in comparison to the living wage figure for the country or region the workers reside in. As the living wage calculation is based on changing indicators in different markets — such as regional cost of living, taxes, cost and availability of public services — it is crucial for companies to establish processes for monitoring and updating the living wage levels to reflect these changes. As well as wages, other remuneration or compensation details are important to assess — such as any bonuses or workplace benefits — and the number of hours worked.

The Salary Matrix developed by IDH (The Sustainable Trade Initiative) helps companies evaluate how total remuneration to workers, including wages, bonuses, cash and in-kind benefits, compares to the relevant living wage benchmarks. The Poverty Footprint, an assessment tool developed by UN Global Compact and Oxfam, provides insight into indicators when measuring performance on living wage. An example of a key indicator is tracking the general trend of earnings in recent years in comparison to the cost of living.

Using technologies such as analytics and machine learning can help companies automate the wage calculation gap based on changing macroeconomic data (e.g. cost of living) and assessments of compliance across the business.

Data on wages paid in the supply chain may be hard to acquire, so constructive engagement with suppliers is important to ensure the correct data is gathered. Inditex has partnered with several organizations, including ACT, to ensure dialogue with suppliers is constructive. H&M has also worked with several organizations to implement their Fair Living Wage Strategy. The UN Global Compact SDG Ambition on Living Wage gives a range of tips on how to engage with suppliers to ensure correct data is gathered, impacts are understood, and performance is tracked.

Companies are expected to communicate their performance on living wages commitments and policies in a formal public report, which can take the form of an annual company or CSR report, such as Schneider Electric, or in an annual Communication on Progress (CoP) in implementing the Ten Principles of the UN Global Compact. Companies may also choose to share living wage information via social media and websites, such as Unilever and Aviva. Key information shared usually includes the percentage of the workforce that is paid a living wage and the status of living wage discussions with suppliers.

Companies that are part of living wage alliances or foundations are also able to communicate their progress via the organization’s channels, such as UK businesses that are listed as accredited employers on the Living Wage Foundation registry.

Workers may find that they are not being paid enough, that their wages are being withheld or that unauthorized or unlawful deductions were made, and so may wish to complain. Businesses should have grievance mechanisms in place for their own employees to confidentially raise complaints regarding wages and should also require suppliers to provide their own grievance mechanism. Some companies provide suppliers with a helpline to enable their workers to raise complaints, while others use third parties to get feedback from workers, e.g. the Ethical Trading Initiative and the Fair Wear Foundation.

Remedy for poverty wages can include increasing wages to a living wage and/or providing back payment to workers for work done on previously inadequate wages.

This section includes examples of company actions on living wages in their operations and supply chains.

Examples of further guidance on living wage include:

• ILO, Global Wage Report 2021: Wages and Minimum Wages in the Time of COVID-19: This report gives context to changing global wages following the COVID-19 pandemic and provides guidance on wage policies for economic recovery and protection of workers.
• ILO, Minimum Wage Policy Guide: This website provides information on key questions of good practice related to minimum wages and highlights different choices that can be made depending on national preferences and country circumstances.
• ILO, The International Labour Organization and the Living Wage: A Historical Perspective: This research paper reviews historical debates related to the adoption of the principle of a living wage between 1919 and these days.
• Living Wage Foundation, The Sustainable Development Goals and the Living Wage: This report highlights the links between achieving the SDGs and paying a living wage and offers guidance to businesses. There are a lot of resources on the website, mainly focused on businesses in the UK.
• IDH, The Sustainable Trade Initiative, Better Business through Living Wage: This report provides an overview of the main actions that buying companies should consider to close living wage gaps in supply chains and showcases tools, tips and examples.
• IDH, Roadmap on Living Wages: This roadmap works to strengthen international alignment and build tangible solutions regarding living wages. It provides a five-step framework for companies to achieve a living wage programme.
• WageIndicator Foundation: This website functions as an up-to-date online tool that may be used as labour market libraries for workers, employers, Governments, academics and media.
• SME Compass, Due Diligence Compass: This online tool offers guidance on the overall human rights due diligence process by taking businesses through five key due diligence phases.
• SME Compass, Standards Compass: This online tool offers guidance on what to pay attention to when selecting sustainability standards or when participating in multi-stakeholder initiatives. It allows comparing standards and initiatives with respect to their contribution to human rights due diligence and their potential limitations.
• SME Compass, Downloads: Practical guides and checklists are available for download on the SME compass website to embed due diligence processes, improve supply chain management and make mechanisms more effective.
• ILO Helpdesk for Business, Country Information Hub: This resource can be used to inform human rights due diligence, providing specific country information on different labour rights.
• United Nations Global Compact, Moving Living Wage Forward Faster – Action Guide: This guide provides companies with target-specific information on how to effectively implement their commitment to improving living wages. This includes KPIs and help designing a strategy to meet the 2030 SDGs.