Both the living wage and the minimum wage have seen an increase this week, but the two pay rates represent quite different concepts.

Here is what you should know about the living wage.

How is the living wage different to the minimum wage?

The minimum wage is the legal minimum hourly rate a person must be paid. It increased by 2% this week – from $22.70 to $23.15 per hour.

The living wage, meanwhile, is an hourly rate that is seen as the minimum needed to pay for basic expenses along with some wriggle room for other costs or savings.

More than 57,000 workers who receive the living wage are in line for a pay boost.

It is defined as “the income necessary to provide workers and their families with the basic necessities of life. A living wage enables workers to live with dignity and to participate as active citizens in society.”

Businesses can choose to pay their staff the living wage, but they don’t have to by law.

Who came up with the living wage?

The living wage was first introduced in 2013 by the Living Wage Movement Aotearoa NZ.

The Living Wage movement is made up of civil society organisations — independent of any political parties.

How much is the living wage?

The living wage has just increased to $27.80 per hour – up $1.80 on last year’s rate.

The living wage is updated every year in the first week of April, with participating employers implementing the new rate by September 1.

How is the living wage calculated?

The living wage is calculated independently by the Family Centre Social Policy Research Unit.

Its calculations are based on supporting the needs of a family made up of two adults and two children on one-and-a-half incomes.

The rate is fully recalculated every five years, using market studies. Updates to the hourly rate for the years in between are linked to movement in New Zealand’s average hourly wages.

This year’s increase in the living wage aligns with a 6.9% increase in the average hourly wage.

The Family Centre informs Living Wage Aotearoa NZ about the new rate each year. It then passed that information on to accredited living wage employers so they can prepare to pay staff the new rate from September.

Which businesses have this accreditation?

Hundreds of New Zealand businesses currently have living wage accreditation – a full list of them is available on the Living Wage Aotearoa NZ website.

Businesses can apply for living wage accreditation and must meet certain criteria to receive a living wage licence.

A licensed living wage employer must start paying the new living wage rate within four months of its release to keep that licence.