How to include London weighting in trade business costs

What is London weighting?

London weighting is a wage supplement paid to workers based in the capital. It is designed to help London residents with the higher living costs associated with the city.

Originally implemented in the public sector to help teachers, civil servants, and NHS workers based in London, it is now commonplace across the private sector.

Inner London weighting vs outer London weighting

The weighted costs are often categorised in two distinct bands. Inner London and outer London.

Inner London refers to the London boroughs located in the centre of the city:

• Camden
• Greenwich
• Hackney
• Hammersmith & Fulham
• Islington
• Kensington & Chelsea
• Lambeth
• Lewisham
• Southwark
• Tower Hamlets
• Wandsworth
• Westminster

Outer London includes all the boroughs directly outside of Inner London that are still considered part of Greater London.

Some employees may also pay a higher rate to workers in the surrounding home counties such as Kent, Surrey, Essex, Hertfordshire etc. These are sometimes referred to as London fringe.

Paying workers supplements in these areas, however, will be down to company discretion.

How much is London weighting?

The average amount of London weighting paid to employees depends on whether they are based in inner or outer London.

According to recent research by the Trust for London, London weighting should be paid at around:

• Inner London – £9,600 per year
• Outer London – £6,549 per year

These figures are given as an approximate minimum allowance needed to meet the extra living costs of London life. However, there is no official Government policy, and so your own discretion is also a factor.

How to calculate the weighting costs for your trade business

The first thing to do when planning to pay your workers with London weighting is to ensure that the same rate is paid for all workers based in the eligible areas.

Some companies choose to pay the allowance as a percentage of overall earnings. This, however, can lead to complications and end up costing your business more as well as favouring higher paid workers.

Paying a flat rate to each employee with the allowance will create a level playing field. It is also more acceptable as London weighting is an allowance to help with the increased cost of living in the capital, not a wage-based bonus.

Ensure that your London weighting policy is clear and concise

Once you have decided on the flat rate, you need to ensure that all employees fully understand your policy.

Some important things to include in your policy are:

• Clear area parameters – these could be set by boroughs (worker address is better if work is carried out in various locations)
• Inflation – Make it clear that payments will be affected by inflation and may increase or decrease but never go lower than the initial flat rate
• State company policy – London weighting should be an integral part of all employees’ entitlements and can not be opted out of

If they meet the criteria of your policy, the allowance should be paid to all employees regardless of contract type. This includes freelancers, contractors, and zero hours staff.

What is the best approach for your business?

If you run a business with multiple sites across the UK, you need to be clear and consistent approach towards pay allowances. Starting with inner and outer London weighting helps ensure that any of your employees located in or around the capital are paid a fair wage.

After this, you may wish to increase your geographical scope to offer financial supplement to workers based in the Home Counties. Some companies also include some sort of allowance in areas such as:

• Oxford
• Cambridge
• Reading
• Guildford
• Woking
• Chelmsford
• Gravesend

Basically, the fringe areas around London can also be included in your weighting costs. Especially for people that commute into the city.

This is due to the high cost of living in these towns and the commutability to London.

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FAQs

Does London weighting count as income?

Yes. As a form of income, it is subject to the usual rules of income tax, national insurance, and pension deductions.

You’ll need to factor it as part of pay allowances and make sure it appears on an employee’s pay advice under the relevant section.

Is London weighting pro rata?

Yes. London weighting should be calculated on a pro rata basis for part time workers.

For freelancers, sub-contractors, and zero-hour workers, it should be calculated by payroll staff when an invoice is submitted.

Does London weighting show on payslip?

Yes. London weighting will appear on your payslip as part of gross earnings.

It will then be subject to the same tax rates as all other earnings.

What areas get London weighting?

Many private sector companies now pay a higher wage to workers based across Greater London.

Inner London workers receive the highest amount with outer London workers receiving slightly less.

Like some other companies, you could choose to pay a slightly higher amount to employees based in fringe areas. These are the home counties and affluent towns like Oxford and Cambridge.

How is London weighting calculated?

The best way to calculate London weighting is by paying a flat rate based on geographical location.

For example, you could pay inner weighting at £6,000 and outer weighting at £4,000.

If you prefer to calculate the weighting based on an employee’s salary, you could use a percentage system.

For inner London workers, this could be paid at 20% on top of basic salary. While for outer London workers it could be paid at 15% on top of basic salary.

You could also extend payments to workers based in fringe London areas at 5% on top of basic salary.

Content disclaimer: This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer here.