Answering Living Wage Questions in the B Impact Assessment

TABLE OF CONTENTS

• 1. What is a living wage?
• 2. Answering the living wage questions in the B Impact Assessment
• 2.1 Accepted living wage accreditations
• 2.2 Using living wage benchmarks
  • 2.2.1 What is a benchmark?
  • 2.2.2 How do I choose a benchmark?
  • 2.2.3 Individual and family living wage
  • 2.2.4 Family size assumptions
  • 2.2.6 Additional considerations for choosing benchmarks
  • 2.2.7  Putting benchmarks into context
• 2.3 Calculating prevailing wages
  • 2.3.1 How to calculate prevailing wages
  • 2.3.2 Principles for including extra wage components
  • 2.3.3 USA health insurance
  • 2.3.4 Examples
• 3. Special circumstances
  • 3.1 Minimum wage higher than living wage
  • 3.2 Collective bargaining agreements
  • 3.3 Other special circumstances
• 4. Other questions referring to living wage in the B Impact Assessment

  • 4.1. Initiatives to increase wages and benefits

• 5. External resources

1. What is a living wage?

In short, a living wage allows someone to afford a decent standard of living for them and their family. The Global Living Wage Coalition offers a more elaborate definition:

The remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events. (Global Living Wage Coalition)

A living wage is a human right and different to a minimum wage, although they have similar intentions. Whereas minimum wages are set by governments, living wages are usually researched by specialist organizations. In most countries around the world, the minimum wage is not actually enough to afford a decent standard of living, which gave rise to the living wage movement.

Related terms:

• Living income is the same as a living wage but then for self-employed people as opposed to employees (e.g. smallholder farmers).

• Market wage refers to what is commonly paid in the market. It does not reflect what a person actually needs and is therefore not the same as a living wage.

• Collectively-bargained wages are those negotiated by a union. They come from collective bargaining agreements, which are legally binding and can apply to a single employer or a whole sector. They are an important means for workers to negotiate better wages and working conditions. In some countries, collective bargaining agreements set legal minimum wages. Ideally a collectively-bargained wage represents a living wage, but in practice this does not always happen.

• Fair wage is a more loosely used term, however it usually refers to the payment of a living wage, fair wage governance, collectively-bargained wages, and/or equitable pay outcomes (e.g. equal pay for equal work). Fair Wage is therefore broader in definition than living wage.

2. Answering the living wage questions in the B Impact Assessment

To answer the questions, companies must calculate if they are paying their workers a living wage. There are two sides to this calculation: what should workers be paid (‘benchmark’) and what are workers paid (‘prevailing wage’)?

2.1 Accepted living wage accreditations

There are external organizations that accredit companies for paying a living wage. If a company has one of the following accreditations then they will receive points for one or both living wage questions. We refer to this as an ‘equivalence’. In such cases, B Lab will verify the authenticity of the accreditation, rather than verifying the implementation of living wages.

All accreditations are optional; none are mandatory for B Corp certification.

Note that most accreditations are location-specific, meaning the equivalence is also location-specific. Companies with workers in multiple locations will either need multiple accreditations or demonstrate the implementation of living wages in countries that are not covered by the accreditations.

Equivalences are subject to change should there be any material change to the methodology of an accreditation body.

If companies have a living wage accreditation that is not listed above and they would like B Lab to consider its equivalence, then they can request this via their B Lab contact person.

2.2 Using living wage benchmarks

2.2.1 What is a benchmark?

A living wage benchmark is a figure that represents what a living wage is in a particular location at a particular time. They are usually expressed as a monetary rate, such as USD per month. There are various organizations researching and publishing living wage benchmarks. Whilst offering vital information to companies, it can be confusing to understand how they vary and which one to choose. Here are some ways in which the benchmark providers vary:

• Coverage: whilst some provide benchmarks for a single province or country, others provide benchmarks for multiple countries

• Fees: whilst some benchmarks are available to the public for free, others must be purchased

• Accreditation: some benchmark providers also offer accreditation (see 2.1)

• Definitions: most benchmark providers use comparable definitions, however there are differences (e.g. not all include child care costs and there are different assumptions of what constitutes a family)

• Research methodologies: organizations vary in how they collect data to calculate benchmarks (to varying degrees they use field research, public datasets and computations)

B Lab’s approach is to accept benchmarks that meet a minimum threshold. It is important that they are created by credible and independent organizations with rigorous methodologies. To this aim, we accept benchmarks that have been recognized by the IDH Recognition Process For Living Wage Benchmark Methodologies. However, because some benchmark providers have not applied for recognition by IDH, there remain some useful ones that we accept in addition. As of March 2022, IDH has recognized five benchmarks: Anker Full-Fledged, WageIndicator Typical Family, Anker Reference Value, Fair Wage Network Typical Family and Living Wage for US Monthly (listed in order of when they were recognized).

Whilst we advocate for benchmarks to be free and publicly available, we recognize that researching and calculating benchmarks is costly and global coverage is difficult to achieve with publicly-funded benchmarks alone. We also recognize that not all (aspiring) B Corps have (free) benchmarks for their locations, or that some may find it difficult to pay for benchmarks. Therefore, companies will not be required to purchase benchmark data. 

2.2.2 How do I choose a benchmark?

Given the variance among the benchmarks listed above, B Lab has developed location-specific guidance. Table 2 shows the accepted benchmarks, split into primary and secondary. Primary benchmarks should be used by default. Secondary benchmarks are available for special situations. For example, larger companies with workers in many countries may prefer a single living wage benchmark provider. Further considerations on choosing a benchmark are listed in 2.2.6. In any case, secondary benchmarks should not be used as a means to pay lower living wages.

Some benchmarks offer their data in multiple formats, where only some are accepted by B Lab. These are specified below in table 3, see right-hand column ‘Limitations to what B Lab accepts’.

Note, in both tables, benchmarks within one cell are listed in alphabetical order. The vertical order does not signify a hierarchy or preference.

Whereas the table above shows the accepted benchmarks, the table below shows any limitations within each benchmark that apply.

If companies know or use a benchmark that is not listed above and they would like B Lab to consider it, then they can request this via their B Lab contact person.

2.2.3 Individual and family living wage

In the B Impact Assessment, companies can get points for paying a ‘living wage for individuals’. Whilst B Lab recognizes that a living wage is for an individual and their family, this question remains in the B Impact Assessment to maintain consistency over time, and more importantly, continue differentiating company performance on wages.

Some benchmarks only provide figures based on a family. In such cases, and where a company pays below this benchmark, they have two options:

1. Pay a family living wage and earn points for both questions (individual and family).

2. Select N/A for the ‘living wage for individuals’ question and <75% for the ‘living wage for families’ question.

2.2.4 Family size assumptions

Family sizes vary. The number of dependents varies as does the number of wage earners, all of which affects living wage calculations. The benchmark providers listed above have different approaches to this. Some (e.g. MIT), provide the user with options, whereas others make assumptions on what a family looks like. Living Wage for US, for example, assumes 1.7565 wage earners per family, based on the national employment rate, and assumes two children and two adults in a family.

Any limitations to what companies may use for the B Impact Assessment are listed in table 3 above under the column ‘Limitations to what B Lab accepts’. Note that where benchmark providers provide options, companies are expected to select the appropriate one(s).

2.2.5 Using the IDH Living Wage Identifier Tool

This online tool shows which methodologies offer benchmarks for your location. These benchmarks meet a methodological threshold (see here for more info). As of March 2022, IDH has recognized five benchmark methodologies, so only those are included. The order in which they are presented within the tool does not signify any preference or priority from IDH’s perspective. Other benchmarks may not be included because they did not apply for recognition.

Use of this tool is optional.

2.2.6 Additional considerations for choosing benchmarks

Alongside the guidance in 2.2.2, companies may take the following into consideration when choosing benchmarks:

• Use location-specific benchmarks (or as precise location as possible)

• Nearest location to where workers are located

• Most comparable location to where workers are located (e.g. similarly rural or similar city size)

• Age of benchmark research (more recent is likely to be more accurate)

• Methodological preference - as mentioned above there are differences between the benchmarks. Companies and sectors may therefore prefer one benchmark over another.

• Urban benchmarks may be used for workers in rural locations if there is no rural benchmark. Urban benchmarks tend to be higher than rural ones, so this tends to be in the workers’ favor and therefore permitted.

2.2.7  Putting benchmarks into context

Human needs are complex, both in theory and practice. So whilst it is valuable to translate this human right into concrete numbers, we must remember that they are based on many assumptions and there will always be an inherent complexity. Also, most benchmark providers regularly update their methodologies to become more accurate and to integrate evolving ideas of what constitutes a decent standard of living. So we must not treat living wage benchmarks as perfect. With this in mind, companies should sense-check living wage benchmark data with their workers.

In addition, unions should play an active role in implementing living wages. In addition to sense-checking the benchmarks, unions can use them in their negotiations. Benchmarks can serve as external validation of living wage gaps. Under no circumstance should implementing living wages hinder or disable unions to negotiate their wages. In sum, benchmarks should be used together with unions and not instead of unions.

2.3 Calculating prevailing wages

‘Prevailing wages’ describes the complete ‘package’ that an employer gives a worker. It can also be called remuneration. They include the base wage and other components, such as in-kind benefits, bonuses and allowances. Not all components are used for calculating prevailing wages. It is important that both the prevailing wage and benchmark are accurate as this ensures the calculated gap is as close to reality as possible. In other words, only through accurate calculations can employers confidently determine if workers are paid a living wage.

B Lab’s guidance on calculating prevailing wages builds on the Anker methodology.

2.3.1 How to calculate prevailing wages

When calculating prevailing wages it is important to be consistent across workers and with your chosen living wage benchmark. Usually, calculations are based on gross wages per month. The currency will depend on the country. Ensure consistency in the following ways:

• Pay period: if for example wages are paid weekly, then multiply by 52 and divide by twelve to obtain the monthly figure. Similarly, if there are bonuses or allowances paid yearly, then divide this by twelve.

• Standard hours: assume full-time work, where the number of hours matches what is used in the living wage benchmark and the local understanding of full-time work. This is usually around 40 hours per week. So for example, if someone works one day a week, their wage should be multiplied by five to calculate their full-time wage.

• Taxes: taxes are usually included in living wage benchmarks, meaning companies should calculate prevailing wages including taxes as well (ie. gross, or before tax is applied)

Below are two ways to simplify the calculation process.

• The prevailing wage includes all wage components. However, it is worth checking if base wages by themselves already meet the living wage benchmark, because this means no further calculations are needed. Therefore this may save you time. If the base wage does not equate to a living wage, then add other wage components based on the principles below (2.3.2).

• When calculating prevailing wages, start with the lowest paid workers. This is the quickest way to reveal whether there are workers or worker groups paid below a living wage.

2.3.2 Principles for including extra wage components

When calculating prevailing wages, an employer may include any component that is:

• Relevant for a person and their families’ life essentials, such as housing, food or education. Any work-related costs are excluded. Also, only include costs that are included as a cost category in the chosen benchmark (e.g. if the benchmark does not account for child care, then do not include child care vouchers).

• Predictable - the worker knows what to expect and when, allowing them to organize and plan their finances (e.g. a fixed monthly allowance, or bonuses determined by policy as opposed to management discretion)

• Usable - the worker must be able to use it easily (e.g. paid in cash as opposed to gift voucher for an obscure shop)

• Accessible - received within a year, so that it can contribute to weekly or monthly costs

• Earned in standard hours - so that workers do not rely on overtime work

In addition:

• For in-kind benefits, employers only include their contribution, not the retail value (e.g. cost to produce cafeteria lunch and not what the food retails for; special conditions apply for health insurance in the US, see 2.3.3).

• Any single wage component (other than the base wage or tips), may not account for more than 20% of the total wage or remuneration. For example, if a housing allowance equals 30% of total remuneration, then only 20% of the allowance may be included for the calculation. This is to avoid one component distorting the calculations.

2.3.3 USA health insurance

For all countries, health insurance may be included when calculating the prevailing wage only if health insurance is included as a cost category in the chosen benchmark. 

Healthcare in the USA is unique because it is relatively expensive and often tied to employment. As such, a special calculation applies. Employers may include the cost saving to the worker as part of the prevailing wage. This calculation assumes the worker has employer-provided health insurance and that a family plan is provided. The calculation still applies if the employer offers multiple plans with varying degrees of coverage (e.g. individual, individual plus partner, individual plus family).

B Lab is working on an approach for employer-provided individual health insurance plans. Whilst we work on this, these companies will not be able to include health insurance contributions in the prevailing wage calculation when completing the B Impact Assessment. One work-around for such companies is to obtain Living Wage for US accreditation, which B Lab accepts as per table 1 in section 2.1.

For companies that provide family health insurance plans, the calculation is (1) - (2) = (3)

   (1) Cost of health insurance premiums as per living wage benchmark

-  (2) Cost to worker for health insurance premiums

= (3) Cost saving that may be included in the prevailing wage calculation

Conditions and guidance for each calculation component:

(1) Cost of health insurance premiums as per living wage benchmark

• Go to Living Wage for US, find your location and use the cost listed under ‘Health Insurance Premiums’ and not ‘Healthcare (out of pocket)’. Note, ‘Medical’ costs listed in MIT’s calculator aggregates premiums and out-of-pocket expenses, and therefore should not be used.

(2) Cost to worker for health insurance premiums

• Use cost for a family plan covering four people, even if different plans are offered to employees (as the cost assumes a family of four as well)

• Use the most advantageous plan for workers at the entry/lower level; and use cost for a silver plan or better

• Use the same cost for all workers (i.e. there is no need to identify the specific cost per worker)

(3) Cost saving that may be included in the prevailing wage calculation

• If the result is negative, then count as 0

2.3.4 Examples

The table below is intended as guidance. Wage-related terminology varies per company, sector and country, so it is possible the terms below do not correspond with all companies’ contexts.

3. Special circumstances

3.1 Minimum wage higher than living wage

On rare occasions, the legal minimum wage is higher than the living wage; though this depends on which benchmark is used to define the living wage. B Lab does not provide a list of these locations because it inevitably changes over time as a result of macroeconomic changes. Living wage benchmark providers are in a better position to provide the most up-to-date information.

When contacting the global paid benchmark providers (currently WageIndicator and Fair Wage Network) they will inform companies if the minimum wage meets the local living wage benchmark. Please note that companies should not use living wage averages for a country.

3.2 Collective bargaining agreements

Collective bargaining agreements (CBA, see ‘related terms’ under section 1 for the definition) represent people’s fundamental right to bargain collectively. B Lab supports their use. However, CBAs sometimes derive from inequitable processes and do not always result in living wages. This variance in quality would entail assessing each CBA on a case-by-case basis, which B Lab is not in a position to do. Therefore, CBAs will currently not be accepted as living wage benchmarks.

The one exception for a CBA to be accepted by B Lab is to be recognized through the IDH Recognition Process For Living Wage Benchmark Methodologies (see 2.2.1).

Companies whose workers are subject to CBAs have three options:

1. Use a living wage benchmark accepted by B Lab (see 2.2.2)

2. Mark the living wage questions as N/A if there is no free benchmark

3. Encourage the CBA initiators to pursue recognition by IDH

3.3 Other special circumstances

• No (free) benchmark: If the majority (>50%) of workers are in locations without free accepted benchmarks, then you may select N/A. If the majority of workers are in locations with free accepted benchmarks, then your company answers the living wage questions. The denominator used to calculate the % of workers receiving a living wage then excludes workers that are in locations with no free benchmarks.

• Partial coverage: It is possible that a company previously got certified based on partial coverage of workers by the accepted benchmarks at that time (e.g. workers in USA covered and workers in France not covered by benchmarks, therefore the living wage responses were based on the USA workers only). Even though B Lab is now accepting benchmarks that cover almost all countries around the world, companies will not be required to apply them in this unique situation. In other words, companies in this situation may continue applying the same approach as before, though they are encouraged to pay and demonstrate paying a living wage for all workers.

• Always voluntary: Like all questions in the B Impact Assessment, companies are not required to implement living wages. Companies may always respond with the first option (no points).

• Remote workers: The applicable living wage benchmark is determined by where the worker is registered for tax purposes. This may not be the same as their home location.

• Recertifying: Companies that are recertifying in version 6 and previously responded N/A due to no benchmarks being accepted by B Lab in their regions of operations may select N/A again (valid only for one recertification term).

4. Other questions referring to living wage in the B Impact Assessment

Beyond the two operational questions in the Worker impact area focusing on living wages, there are several other questions that refer to living wages in the B Impact Assessment. The updates in this article apply to those questions as well.

4.1. Initiatives to increase wages and benefits

Examples of initiatives companies can take to increase wages and benefits recognized in the question "Initiatives to increase wages and benefits": 

• Provide support or resources above the legal minimum for collective bargaining efforts by trade unions

• Support labor unions to calculate a living wage (e.g. by connecting them with resources or funding research)

• Play an active role in existing living wage initiatives (see, for example, 'Membership or multi-stakeholder initiatives' under section 5. External resources of the Knowledge Base Article)

• Set up a new living wage initiative (e.g. organize learning events or set up a working group among peer companies)

• Play an active role in advocating or lobbying for legislative advancements, including minimum wage or benefit increases

• Participate in or facilitate living wage research (e.g. by piloting new approaches or methodologies)

• Commission living wage research and making the data public

5. External resources

International standards and frameworks:

• Universal Declaration of Human Rights (article 25.1)

• International Covenant on Economic, Social and Cultural Rights (Article 7)

Defining a living wage:

• Global Living Wage Coalition

• Anker Methodology (see chapter 2, section 1)

• WageIndicator’s visual explanation

Calculating prevailing wages:

• Anker methodology (see chapter 15)

• Salary Matrix - IDH

Reporting on living wage:

• Accounting for a Living Wage - Shift

Implementing living wages for workers:

• Living Wage Benchmark Reference Sheet Achieving the Living Wage Ambition: Reference Sheet and Implementation Guidance - UN Global Compact (también disponible en Español)

• Living Wage - Patagonia

Implementing living wages in the supply chain:

• Living Wages in Global Supply Chains - Ethical Trading Initiative

• Paying living wage in the electronic supply chain - Fairphone

• Living Wage - Patagonia

• Steps Towards a Living Wage in Global Supply Chains - Oxfam

• Living Wage Action Guide - IDH

• Living wage case study examples - IDH

• Align Tool - FairFood

Membership or multi-stakeholder initiatives active on living wage globally:

• ACT

• AIM-Progress

• Fair Labor Association

• IDH

• Global Living Wage Coalition

• UN Global Compact

• UK Living Wage Foundation

Other resources:

• AIM-Progress Living Wage Playbook

• WageIndicator’s FAQ

• The International Labour Organization and the Living Wage: A Historical Perspective

• The Case for Living Wages - Business Fights Poverty