In-Kind Benefits and Living Wages: What Should Be Included in Wage Calculations?

When we started working on the implementation of Living Wages, we came across hundreds of different bonus, allowance and in-kind benefit systems. Initially, my first thought was: couldn't it be simpler?

Daniela: Yes, you would hope so! Once you start looking at how companies actually pay their workers, you realise how complicated it can get. On top of the basic wage, there can be all kinds of bonuses, allowances and in-kind benefits, from a 13th-month salary to free meals, transport or housing.

The challenge here is that not everything a worker receives can automatically be counted in when comparing paid wages to the Living Wage. We need to understand the value of each benefit, whether workers can actually rely on it, and whether it helps cover the living costs included in our Living Wage estimates.

So I think the solution is not necessarily to make everything simpler - we cannot change how wages are paid in different countries and sectors -, but to establish clear principles that companies can apply consistently. That definitely helps in finding a way to work with this variety of allowances and benefits and the Living Wages.

We had a meeting with a giant in the plastics industry. They spent weeks talking to us about how to manage food vouchers, evening meals, bus tickets, school books, etc. My feeling is that this company spends much more time year on year calculating all the finer details of the finances than working on a real living wage. How should it be organised?

Mehr: Yes, well these are the questions we get every now and then, however we feel that it is not very efficient to go about calculating the value of every in-kind benefit. Non cash or in-kind benefits are complicated in the sense that they can be discretionary, administered inconsistently and are it is not always so simple to attach a value to them. Moreover, from the workers' perspective they take away the freedom that would otherwise come with cash allowances since workers can use those based on their need and circumstances.

Typically, we advise focusing on guaranteed allowances, and only the in-kind benefits of healthcare, housing and education. Here too, we recommend a cap - so the value of the in-kind component should not exceed the value of the component in the Living Wage estimate.

Nadia, Dela, you have worked in many different industries in Indonesia. You discussed two topics with a company: whether it is better to deliver top-quality rice at a low price by deducting the cost from the total Living Wage, or to allow employees to spend the food as they wish while continuing to provide rice without deducting it from the Living Wage. Which option is wiser and why?

Dela: Before deciding whether this is wise, companies we facilitate have raised concerns about converting the rice benefit in kind into a cash allowance. They say workers have the same concern. 

1. It could potentially cause difficulties in sourcing or purchasing rice due to accessibility and market availability.
2. It could also lead to additional costs as market prices for rice fluctuate. The rice provided by the company is, on average, of moderate quality and is delivered directly to the workers’ homes.
3. Rice provided as a benefit in kind ensures that workers and their families can eat every day.This is particularly important given that, at present, a significant number of workers are in debt to meet their basic living expenses or as a result of online gambling. Consequently, the majority of their monthly income goes toward repaying these debts. A regular rice allowance helps ensure that families have enough to eat.

The concern number 3 is worth considering, but this is relative and depends on individual circumstances. Meanwhile, concerns number 1and 2 can be addressed by establishing cooperatives or markets that sell daily necessities at standard prices to minimize the impact of rising prices, particularly for rice.In-kind rice allowances for plantation workers have existed for a long time; similarly, civil servants and members of the Indonesian National Armed Forces (TNI) and the Indonesian National Police (Polri) have also received the same benefit (since the New Order era/the 1960s). At that time, the aim was for the state to purchase rice directly from the state-owned company in food logistics (Bulog).

Over time, this regulation was amended and came to be known as a cash rice allowance in 2015. Consequently, the state’s role is now only to calculate the number of families, the rice rations covered, and the cash compensation. This regulation is considered an improvement because it allows civil servants, TNI, and Polri to manage their own income for food expenses. A similar change could also be implemented for plantation workers, accompanied by easily accessible markets that provide a comprehensive range of foodstuffs, not just rice as a staple, at standard official market prices.

Nadia: From our perspective, we believe that workers should have the freedom to spend their wages and benefits according to their own needs. However, this does not necessarily mean that companies should stop providing rice. They can continue offering rice as an additional benefit without deducting its value from the Living Wage calculation.At the same time, it is important to listen to the companies and understand their reasoning for providing rice in kind rather than cash, as Dela explained earlier. We should also discuss these reasons with the trade unions, as they represent the workers' interests. For example, some workers might prefer cash, while others might prefer rice in kind, especially if buying rice themselves would require extra travel time and costs. So, the wise approach is to understand what workers actually need and discuss the options with their representatives. In the end, the goal is to support workers in meeting their essential living expenses. We want to encourage an approach that best supports workers and reflects their actual needs.

Mehr, Dani, you focus a lot on bonuses, allowances and in-kind benefits. What is the best option? Is it better for the basic wage alone to be equivalent to the Living Wage? Or are there good reasons for bonuses and allowances to be deducted from, or considered part of, the Living Wage? What about in-kind benefits? Should we disregard them, or should we create different rules for each industry?

Daniela: Ideally, the basic wage alone should be enough to cover a Living Wage. That's the clearest and most reliable situation for workers, and it also makes implementation much easier for companies. But in reality, wage systems are much more complicated. In some countries and sectors, bonuses and allowances represent a significant part of workers' earnings. Ignoring them completely wouldn't necessarily give us an accurate picture. So I think the important question is not what a payment is called, but whether workers can actually count on it.

• Is the payment guaranteed?
• Is it paid regularly?
• Can workers freely use that money to cover their living expenses?

A guaranteed 13th-month salary, for example, is very different from a bonus that depends on company profits or individual performance. In-kind benefits are even more complicated. Housing, meals or transport can certainly have value for workers, but they are not the same as money. Workers cannot necessarily choose how to spend that value, and sometimes the benefit is actually something that serves the employer's needs.

I wouldn't exclude in-kind benefits altogether, but I wouldn't develop completely different rules for every industry either. I think we need a common set of principles, with enough flexibility to assess different situations. Otherwise, Living Wage comparisons become too complicated and inconsistent. And throughout this discussion, we should remember the objective: not simply to find more things we can count towards a Living Wage, but to make sure workers can actually afford a decent standard of living. See chapter 6 in the FAQ.

Dani, Intan, you have both been comparing lots of different living wage datasets from various providers. In conclusion, whether or not certain bonuses or in-kind benefits are included makes a huge difference. Could you please elaborate on these differences?

Daniela: Yes, and I think this is something that deserves much more attention in the Living Wage discussion. We usually spend a lot of time comparing Living Wage estimates from different providers. But when a company wants to implement a Living Wage, it also needs to decide what counts as part of the wage workers already receive. And that's where the differences can become really significant.

In our comparison of six implementation tools and guidelines, we found quite a lot of agreement on some basic principles. For example, overtime pay is generally excluded, and fixed allowances that workers receive regularly and can freely spend are usually included.

But when it comes to bonuses, and especially in-kind benefits, the rules can be very different. Some approaches don't count in-kind benefits at all. Others allow them, but with different limits, sometimes 15%, 25% or 30% of remuneration. And there are also differences in how their value is calculated. Do you use what the benefit costs the employer, or what the worker would otherwise have to pay for it?

Think about a company providing housing to its workers. Depending on the rules applied, that housing could count for nothing, or it could represent a significant part of the remuneration considered in the Living Wage comparison. So the same company, paying exactly the same wages and providing exactly the same benefits, could report very different Living Wage gaps depending on the implementation guidelines it follows.

That's why we believe that transparency about implementation rules is just as important as transparency about which Living Wage estimate is used and how it is calculated. Otherwise, we might be comparing results that are not really comparable.

Intan, could you explain how significant the differences between the various datasets are?

Intan: From the comparisons we’ve done, the differences between Living Wage datasets from different providers can be quite significant and they don’t always move in the same direction. Valuing Impact is relatively balanced around WageIndicator Foundation’s range, Anker / GLWC tends to be lower, while Local Living Wage estimates are often higher in the comparable cases. These gaps falls around 10–20% in average, and they seem to be driven not only by the final calculation but also by differences in geography, year of study, family size, number of earners, and which cost components are included. So the key is to compare both the number and the methodology behind it.

Is the way WageIndicator counts for allowances and bonuses similar to how others do it?

Daniela: Yes, there are many similarities, especially for bonuses and allowances. Most approaches agree that payments should be guaranteed and predictable, and that workers shouldn't need overtime to earn a Living Wage.

But when it comes to in-kind benefits, there are some important differences, especially in how these are valued.

For example, WageIndicator allows certain benefits related to housing, healthcare and children's education, under specific conditions and with a maximum of 25% of the Living Wage. We generally recommend excluding meals and transport, because their value is often small and difficult to calculate. Also, we recommend valuing the in-kind benefits as the component we provide.

Anker takes a similar approach, but slightly different. It also allows benefits such as meals, transport and childcare, but under specific conditions and limits. And their new guidelines go much further in explaining how these benefits should be valued, looking at what workers actually save, at household expenditure surveys and - only when there is not enough data - look at the cost for the employer. For food commodities, they combines employer cost with market-price limits.

Amfori follows the Anker Methodology for Living Wage calculations and implementation.

SMETA also considers workers' total remuneration, including benefits, when comparing wages with a Living Wage benchmark. What we recommend doing - and that the Ankers' paper about in-kind benefits also recommends, is to report both figures (comparison of both basic wage and total remuneration), because that provides a concrete solution to the comparability problem, rather than just identifying it.

So, while the general principles are often similar, the details can be quite different. And those details matter, because they determine how much of a worker's remuneration is counted and, ultimately, how large the reported Living Wage gap is.