FWF has developed a new labour minute costing tool for Bangladesh in anticipation of the planned wage rise in December. With this tool, factories and buyers of garment brands can determine a factory’s cost of one minute of labour.
The tool helps to identify the needed increase of the manufacturing price of garments to cover the increase in labour costs due to the minimum wage rise. Effective 1 December 2018, the legal minimum wages in Bangladesh will go up by 51% (for grade 7). With this also comes a responsibility for brands to revisit their price levels.
Bonuses & overtime hours
The new labour minute costing tool helps to identify all the different elements that add up to a factory’s total labour cost, such as bonuses and insurance. The tool is even flexible to accommodate for exchange rate fluctuations and actual overtime hours.
We may have started with Bangladesh due to this recent wage increase, but FWF intends to make Labour Minute Costing Tools also available for other production countries in the future. Moreover, the tool will be expanded to allow for the calculation of a factory’s labour minute cost based on “a” living wage benchmark.
To create the best tools, we welcome feedback from stakeholders, brands and factories to make sure these instruments are as relevant as possible.
Some background on the UN’s guiding principles on B&HR
The global garment industry now finds itself in a new regulatory environment. Following the translation of the UN’s Guiding Principles on Business and Human Rights, a new set of due diligence guidelines are in place. These guiding principles define due diligence as ‘the process through which enterprises can identify, prevent, mitigate and account for how they address their actual and potential adverse impacts’ in their sourcing practices. Yet how do such principles translate in the area of wage compliance?
The OECD has provided some guidance in stating that this should include both wage compliance with national laws and ensure that wages satisfy the basic needs of workers and their families. For manufacturers wage compliance, this also means covering those non-mandatory elements which require them to retain, incentivise and reward their workforce.
Brand Performance Checks
Through our annual Brand Performance Checks, FWF assesses whether our member brands are exercising proper due diligence in their price negotiations with their vendors regarding wage compliance. However, it has become clear this is difficult for brands on their own as they often do not have the full picture of their supplier’s labour costs.
Research has also found that when minimum wages increase, many garment companies did not increase their prices enough to absorb all the additional costs of production. This is why we at FWF in anticipation of the 2018 minimum wage rises in Myanmar and Bangladesh began researching with suppliers how to assist in developing a labour costing tool that brands and factories all can use.
–> Read more about this topic in the FWF Labour Minute Costing publication and the new FWF report: Using Due Diligence in Labour Costing to meet wage compliance