Tackling in-work poverty: Guidance for employers

In-work poverty occurs when a working person’s income, after housing costs, is less than 60% of the national average, and they don’t earn enough to meet the cost of living (calculated using data from the ONS households below average income statistics). It’s an issue that’s been growing since the mid-1990s, and affects people in different ways.

Driving factors include:

• Low income, with pay rises failing to keep up with the rising cost of living. 
• Poor job quality and employment practices leading to financial instability, trapping people in low-paid roles.
• A lack of genuine, two-sided, flexible working practices that enable people to fit their work around their caring responsibilities and health needs.
• Underemployment (where people work insufficient hours to cover their cost of living). 
• Financial hardship caused by unforeseen setbacks in personal circumstances, such as relationship breakdown, bereavement or illness.
• The ‘poverty premium’, which traps those on lower incomes in a cycle where they pay more for goods and services.

In-work poverty isn’t limited to those in the lowest-paid roles and the risks of being trapped in poverty are not equal. It can depend on the sector people work in, their hourly pay and number of hours worked, where people live, as well as their age, gender, ethnicity and disability. Barriers like access to childcare and transport can also determine whether people are able to escape poverty through work. 

Those most vulnerable include children, as well as people in: 

• families without full-time workers 

• single-parent families 

• families with a disabled person 

• families with three or more children 

• rented accommodation 

• households headed by someone of non-white ethnicity. 

Workers in certain sectors – particularly accommodation and food services – are far more vulnerable to in-work poverty, while other sectors at risk include administration and support services, wholesale and retail, construction, health and social work, and manufacturing. 

In-work poverty can affect people's lives in various challenging ways. For some individuals, poverty may mean: 

• going without food, adequate clothing or heating – or having to choose one over another 

• relying on food banks or favours from friends and family 

• being unable to save for a rainy day or emergency and having no money for social or leisure activities 

• increased work absences or lateness, for example, due to: 

  • having no money to travel to work 

  • struggling to afford childcare 

  • money worries contributing to poor mental health 

  • poor nutrition leading to physical illness 

  • feeling unable to take time off work when ill 

  • facing stigma which can pull people down and hold them back – often preventing them from accessing the help they need and hindering their progress at work. 

Living like this from day to day, with no hope on the horizon, is exhausting – and makes it almost impossible for people to improve their lives and fulfil their potential. For people in work, this can affect their performance and damage their physical and mental health, trapping them in a cycle from which it’s difficult to escape.

To demonstrate what in-work poverty looks like for different people, we teamed up with JRF to create a series of seven fictional characters, based on JRF’s extensive insights into lived experiences of in-work poverty.

People living on low incomes often pay more than people on higher incomes for basic goods and services. This is known as the ‘poverty premium’, and can make poverty harder to escape. 

For example, if you can’t afford to pay for things like home insurance up front, you may have to pay in monthly instalments, which can cost more overall. Similarly, many low-income families do not have access to affordable finance and may rely on payday loans to make ends meet, which is more expensive than other mainstream credit alternatives.

Work can and should be a reliable route out of poverty. Employers can do their bit by considering and implementing a three-strand financial wellbeing policy that minimises in-work poverty. 

This three-strand policy is as follows: 

• Providing a fair and liveable wage. 

• Offering and signposting benefits and financial education. 

• Supporting in-work progression to help people increase their earning potential. 

Responsible organisations recognise that an employee’s wage needs to meet the cost of living. A fair and liveable wage gives employees a chance to lead a dignified life, with access to the opportunities and choices needed to fully participate in society.  

What is pay fairness?

There are three types of pay fairness: 

• Fairness of pay outcomes: how the pay budget should be distributed. 

• Fairness of the process used in making pay decisions. 

• Fairness in the quality of treatment people receive when pay procedures are implemented. 

People professionals play an important role in formally defining what ‘fair’ means in the context of their particular organisation. This, in turn, helps guide management decisions on reward (such as how much to contribute to employee pensions) and shows employees what they can expect from the organisation. 

Five ways to foster pay fairness

• Be transparent about how pay is set and how people can secure a pay rise, communicating both directly to employees and through unions and employee representatives where appropriate. 

• Ensure that all job vacancies clearly advertise salary/wage ranges – this demonstrates your organisation’s commitment to transparency. 

• Pay a wage that enables people to meet the true cost of living and, wherever possible, provide security of hours if workers need it. 

• Remove any barriers preventing people from working the hours necessary to meet their financial needs. 

• Ensure that pay outcomes and processes in your organisation are fair – such as by checking the reasons for gender, ethnicity or disability pay gaps and engaging with unions or employee representative groups as relevant. 

Read our factsheet on pay fairness and pay reporting for more information on: 

• what fair pay means 

• the information you need to disclose by law 

• the opportunities pay narratives bring. 

A liveable wage is one that enables people to lead a dignified life and meet the true cost of living. 

It is worth saying that a low wage won’t necessarily mean someone is in poverty, and a decent wage won’t always protect them from poverty. A person on low pay might be able to keep their living costs low if they live with a higher earner, while someone who earns a decent hourly wage could still face poverty if they have particularly high living costs or find themselves stuck on a work contract that doesn’t suit their needs, with too few hours of work to reach an acceptable standard of living, and little chance of progression.   

Tips for providing a liveable wage

1. Ensure your hourly rates of pay are high enough to cover the cost of living – pay at, or above, the voluntary real Living Wage, wherever possible. 

2. Provide workers with the hours they want and need wherever possible, and remove any barriers that could prevent people from working more hours (such as by providing more flexible working options).  

3. Give reasonable notice of shifts (the CIPD calls for a minimum of seven days, and the Living Wage Foundation recommends four weeks where possible), with options for people to opt in if they want to be contacted when shifts are available at short notice. Provide the option of more predictable hours for people who need them, wherever possible. 

4. Recognise the lengths to which employees often go to make shifts work (such as paying for childcare or transport), by fully compensating for shifts cancelled with less than 24 hours’ notice.  

5. Ensure that any flexible or ‘atypical’ working arrangements offer genuine choice and flexibility for both parties. For example, ensure that employees feel able to decline shifts that don’t suit them without fear of being withheld shifts in future. 

6. Offer occupational sick pay to enable people to take time off when sick without risking their livelihood. 

7. Break down any real or perceived barriers that prevent people in your organisation from earning a liveable income – for example, a lack of genuine flexible working options or progression opportunities. 

Beyond paying a fair and living wage, employers play a crucial role in helping working people to escape poverty in other ways. Our financial wellbeing depends on more than how much we’re paid – it’s about feeling secure and in control, knowing you can pay the bills today, can deal with the unexpected, and are on track towards a healthy financial future.  

By offering employee benefits that help incomes go further, sign-posting relevant financial advice and guidance, and creating a safe place to talk about money worries, employers can make a big difference to people’s lives. 

The moral case for supporting financial wellbeing is clear, but there’s a compelling business case too: research shows that when we’re worried about money, our work suffers. Poor financial wellbeing can lead to increased absence and reduced productivity. Employees with access to financial wellness programmes report feeling more focused on their job and more positive about coming to work and being part of their organisation.  

Beyond this, businesses also have a responsibility to support their employees’ financial wellbeing. Investors and consumers are increasingly recognising this, with more and more concerned about how workers in the firms they invest in – or buy from – are treated. 

Refer to our financial wellbeing guide for more information.

Make your benefits package work harder for those at risk of poverty

Providing the right employee benefits – and ensuring staff can access them in an inclusive, accessible manner, regardless of digital proficiency – is crucial to helping people escape poverty. The right benefits can help to offset the 'poverty premium', increase your people’s spending power, and protect them from financial shocks. 

Research by the Joseph Rowntree Foundation (JRF) has found that "low earners attach greater value to those benefits that mitigate their highest living costs, such as food and leisure, travel, childcare, housing and utilities".  

Here’s how the JRF suggests you can help in these crucial areas: 

• Housing and utilities: Introduce rental deposit schemes, accommodation and rent subsidies, and technology and telecommunications loans or subsidies. 

• Childcare: A range of benefits can help to mitigate childcare costs, including flexible working, paid time-off for caring responsibilities, subsidised childcare, or aiding access to the UK Government’s Tax-Free Childcare scheme. 

• Travel: If possible, offer transport season ticket loans, travel expenses, company car/van, cycle-to-work/bike loans, and work bus/public transport subsidies. 

• Food and leisure: Retail and leisure benefits have become more common – these may include free or subsidised meals and drinks, shopping and lifestyle discounts, vouchers, and sporting and recreational facilities. 

Whatever your benefits package looks like, make sure you regularly remind your workforce what’s on offer and how it could help them. 

Empower your people to support their own financial wellbeing

A financial wellness programme could be as simple as using your existing internal communications channels to signpost free and independent financial wellbeing advice (such as that available from the Money & Pensions Service), alerting staff to the dangers of financial scams, or reminding people of the range of employee benefits you offer. 

Employers who can dedicate more resources could consider a financial education programme that targets interventions at key moments in working lives – for example, ahead of maternity leave, the purchase of a new home, or preparing for retirement. 

Increase take-up of financial wellbeing support by normalising conversations about money

To encourage employees to access help when they need it, HR teams should use internal communications channels to regularly discuss money issues and signpost support. By increasing your own awareness of the drivers of in-work poverty and how it can affect people’s lives, you’ll be better placed to make your communications relevant and relatable. Involving employees in the development of your financial wellbeing strategy can also help break down barriers. 

HR teams should use a variety of mechanisms to engage with staff – like surveys, forums, polls and webchats. This data can help employers design and refine their financial wellbeing policies, as well as assess their effectiveness. 

Line managers also play an important role in spotting financial distress and sign-posting support – but shouldn’t provide financial advice themselves. Train line managers to regularly and sensitively check in with their teams’ overall wellbeing. But bear in mind that every employee’s financial circumstances are incredibly personal, and many staff will be reluctant to talk. Staff will only confide in their managers about their financial worries if they can trust them to be non-judgemental and helpful. 

For someone living in poverty, a route to progress out of a low-paying job can be a light at the end of the tunnel. Whether it’s developing skills, providing clear pathways free of barriers or challenging perceptions, people professionals play a vital role in helping staff progress in the workplace.

Break down barriers to progression

Progression doesn’t just happen naturally – people need a clear path to follow, access to the right training and a supportive line manager. People professionals also play a vital role in breaking down barriers that stand in the way of progression: 

• Promote a culture of lifelong learning and show people of all ages and stages of their careers a clear path to progression if they want it. Invest in targeted training and development to help people fulfil their potential, regardless of age, disability, or other factors. 

• Promote an inclusive flexible working culture that ensures those who work flexibly are not overlooked for development opportunities, and quash any perceptions that flexible working is unsuitable for managerial roles. 

• Put in place a clear pay structure and ensure everyone in your organisation (particularly those in the lowest-paid roles) knows what they need to do if they want to take on higher-paid roles. 

• Develop your line managers, so that they are equipped to support their teams to progress. 

Ensure flexibility doesn't hinder progression

Flexible working can both enable or hinder in-work progression, depending on the organisational culture. Many people find themselves stuck in low-paid roles because they can’t sacrifice the flexibility – if progression means disrupting an already precarious work-life balance (juggling work and childcare, for example), their options are limited.

A well-managed flexible working culture – with options like job-sharing, compressed hours, hybrid working or flexibility around start and finish times – can make higher paid roles a reality for those who need the flexibility. In fact, case studies show that flexible working has been successfully adopted in roles and sectors where you might least expect it.

Train managers to support in-work progression efforts

An organisation’s efforts to support in-work progression will be hampered without skilled and capable people managers who are willing and able to spot and nurture potential in their teams. 

Managers should set aside time for informal development conversations, as well as encouraging employees to speak openly about their long-term ambitions so that they can build the skills and identify the steps they need to take to reach their goals. 

However, managers’ willingness and ability to support in-work progression will be limited if not supported by an organisational culture of lifelong learning and inclusive flexibility. 

Develop in-house talent

Developing in-house talent is often easier than recruiting new people to plug your organisation’s skills gaps. Businesses that invest in their workforces also enjoy improved staff retention, loyalty, and engagement. 

Here are some key steps that employers can take to develop their workforce’s skills: 

1. Create an individual progression and learning plan: People professionals are instrumental in implementing – and measuring – progression plans for low-paid employees. Draw up a clear progression pathway for each employee, with regular reviews. 

2. Offer mentoring: Giving staff the opportunity to learn from their peers is invaluable and can help boost their confidence and ambition. 

3. Introduce shadowing and work experience: Schemes aimed at low-paid workers that offer individuals a taste of all areas of the business – from the shop floor to the boardroom – can help expose them to different roles and opportunities. Experiencing what greater responsibility looks and feels like first-hand can address any attitudinal barriers to progression. 

4. Support professional development: Pay for and/or provide paid time off for employees to work towards a professional qualification or develop the skills they need to progress.  

What if my business can’t afford to invest in L&D?

Investing in a dedicated training and development plan may be easier for larger companies than smaller ones, but it’s important not to ignore it. 

Take advantage of existing skilled staff and create both formal and informal environments for them to pass on their knowledge to lower-paid employees. Mentoring and work experience can form part of this offering. 

For any training you do provide, be clear about what you’re trying to achieve and what employees need to learn – find their skills gaps, set clear goals, and then measure the outcome. 

As well as offering career progression through training and development, small and large businesses can also help to boost pay packets in the short term by helping people work more hours if they want to (and helping to break down any practical barriers that make this difficult). 

UK employers can support their employees’ financial wellbeing by paying staff at or above the real Living Wage.

The UK’s real Living Wage

The voluntary real Living Wage is an hourly rate calculated according to the basic cost of living in the UK. It’s higher than the UK Government’s compulsory National Living Wage, which is based on a percentage of medium earnings. The real Living Wage is set independently by the Living Wage Foundation, and around 15,000 UK employers have voluntarily signed up as accredited Living Wage employers. CIPD research suggests that even more employers pay the voluntary rate, even if they’re not accredited; 74% of employers pay, or plan to pay, at or above the real Living Wage. 

Paying the real Living Wage is not only good for your employees’ financial wellbeing; it’s good for business too. According to the Living Wage Foundation, 86% of accredited employers said it had improved the reputation of their business, while 75% said it increased motivation and retention rates.

The cost-of-living crisis has made it more likely that people will suffer from in-work poverty. These key considerations can help employers alleviate the financial burden placed on their employees by the recent jump in living costs:

• Review your reward strategy – if you can afford to offer a cost-of-living allowance, make sure it doesn’t inadvertently do more harm than good for those who claim Universal Credit or Tax Credits.
• Review your financial wellbeing policy – do your people know what help is on offer and how to get it?
• Review your benefits package – is it working hard enough for those most in need? Again, does everyone know what’s on offer and how to access it?
• Consider the legal implications if your employees want to undertake second jobs and cover rising living costs. Find out more about what the implications are for a zero-hours worker wanting to take a second job (see ‘Recent UK law changes on zero-hours contracts’ section).
• Train your managers – using our line manager development exercises to ensure your managers provide the right support to staff through the cost-of-living crisis.
• Empower your employees to be heard – to create an inclusive environment that makes employees feel understood and recognised.
• Build your communication strategy – to establish trust in challenging times and create dialogue between managers and employees.
• Examine the CIPD Reward management survey – which looks at the various ways employers have been helping with financial wellbeing and tackling in-work poverty.