National Minimum Wage to be replaced by new ‘Living Wage’

Last updated: June 23rd, 2022

First published: June 20th, 2022

Plans have been announced to replace the current National Minimum Wage in Ireland of €10.50 per hour with a new ‘Living Wage’, which will be phased in over four years starting in 2023.

The new Living Wage in Ireland will be set at 60% of the median wage in any given year. But how will the Living Wage impact employers? Let’s find out.

What is a Living Wage?

A Living Wage is an hourly wage. The intention of these plans is to enable employees to afford an agreed socially acceptable minimum standard of living.

In 2021, Tánaiste Leo Varadkar asked the Low Pay Commission to undertake research on how best the Government can progress to a living wage.

The new recommendations come after Tánaiste Leo Varadkar made a request in 2021 to the Low Pay Commission to undertake research on how best the Government can progress to a living wage.

Discussing the Living Wage, Mr Varadkar said, “It’s really important we get the balance right and I think this proposal achieves that. However, I will be listening over the coming weeks for feedback before bringing a final plan to Government later this year. The most important workers’ right is their right to work, to have a job. That is why I am proposing we phase this in and I will be listening to employers’ views on these draft proposals,” he added.

The Low Pay Commission recommends that the National Minimum Wage (NMW) should remain in place until the Living Wage is fully phased in, in 2026. The NMW will increase in the coming years as planned until it closes the gap between it and the Living Wage. Then in 2026, the NMW will no longer be in effect, and the Living Wage will be mandatory for all employers.

Why is the Living Wage being introduced?

When asked whether a Living Wage was sufficient to live in Ireland, Mr Varadkar said that there will always be a demand for increases to the minimum wage. He added that, while 2.5 million people in employment, the aim is to achieve full employment; “…we also want to make work pay and ensure that it pays better. So, whether you get up early in the morning or work late at night, we want you to be paid more, and this is a proposal to do exactly that. But it does need to be phased in. What we don’t want to do is, in an attempt to do something good by increasing people’s pay and increasing it significantly, is actually put employers in a position where they have to lay people off for a couple of hours because that’s the unintended consequence sometimes of trying to do something good is that you actually do harm.”

When asked about the timing of the announcement, Mr Varadkar said, “The average person in Ireland is going to get a pay increase this year, the vast majority of people will, and they will lose more than half of that pay increase in income tax, PRSI, and USC and we don’t think that’s fair. That’s why we got that commitment to having a tax package in every Budget and that’s why that’s there, because we don’t want to see people on average incomes, on €40,000 or €50,000 a year, losing more than half their pay increase on income tax, PRSI, and USC.”

How will employers be impacted?

The first ─ and most obvious ─ impact will be increased costs. The intention of the Living Wage is not to put employers under financial pressure so as to force them to reduce employees’ hours or let them go. And yet, it’s crucial that you assess your own situation and calculate how the Living Wage will affect your bottom line.

On the point of preparation, you should also begin adapting your employment documentation. That way, you’ll avoid the stress of updating employment contracts and handbooks at the last minute.

HR help with the Living Wage and Irish minimum wage

If you need help preparing for the new Living Wage, we can help. Speak to an expert on (01) 536 7532 or request a callback here.

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