Support better supply chain wages

The diagram below shows steps you can take to support better supply chain wages.

Protect wages

Price negotiation is a normal part of doing business, but it should not come at the expense of workers’ wages. Ringfencing labour costs during price negotiations can help ensure that wages are protected and not compromised.

Wage values and the cost of living are not static. Wage levels are subject to change, such as through national legal increases to the minimum wage or through collective bargaining agreements. These increases need to be reflected in the prices you pay.

Open costing (itemised costing) can be an effective way to understand the full costing of an order and to ringfence wages. This costing method needs to be approached responsibly. As a purchasing company, you need to be clear on your reasons for wanting itemised costs and make sure your suppliers are not put under undue pressure to disclose information. 

Buyers need to be trained to interpret costing data and use it responsibly. Safeguards must be in place to prevent transparency being misused to drive prices down unfairly. Develop your methodology in consultation with suppliers and make sure it is supported by ongoing, two-way dialogue.

Alternatively, the labour share model—outlined in the Act Labour Costing Protocol—can be an effective way to ringfence wages, where negotiations do not enter the same level of detail as cost-based calculations. 

In this video: Keren Pybus, CEO and co-founder of Ethical Apparel Africa

Keren shares insights on how to use open (itemised) costing effectively:

• Training is essential for those negotiating prices.
• For example, buyers need to understand the implications of minimum dye quantities—not just minimum order quantities—to negotiate meaningfully.
• Clear specifications are needed to enable true cost comparisons between suppliers, including details like trim, packaging, and size ratios.
• Payment terms must be clearly defined.
• Buyers should be open to price adjustments when market conditions change (e.g. rising logistics costs).
• Open costing is a useful tool to help clarify base costs and then support dialogue around profit and risk.
• The information needs to be used fairly.

Cover the cost of wage increases

Wage levels are influenced by factors beyond the control of any single company. However, your costing approach can play a key role in supporting wage improvements rather than hindering them.

The sections below outline practical ways to gather data, assess living wage gaps, and contribute to higher wages. These methods can help support living wage premiums or incremental increases, such as those negotiated through collective bargaining.

While understanding workers’ pay and its adequacy in relation to living costs is important, you don’t need precise assessments to begin making improvements. Low wages are a well-documented risk for garment workers. Any estimates will have limitations due to underlying assumptions, so it’s more effective to focus on improving pay than on extensive data analysis.

In this video: Koen Oosterom, an industry expert on wages 

Koen introduces two approaches that brands and factories can use collaboratively to raise wages.

1. Labour minute costing  

This method calculates the additional cost required to raise wages per minute of production.

• Although Koen uses different terminology, this approach aligns with ACT’s labour cost component (LCC) formula: 

LCC= labour minute value (LMV) x standard allowed minutes (SAM) / efficiency factor

LMV= (direct labour costs + indirect labour costs) / total production minutes

• You can calculate LCC at both current and target wage levels (e.g. based on a collective bargaining agreement or living wage premium) to compare their impact on the final item price.
• The Fair Price app supports fact-based costing and enables these comparisons.
• Koen notes that costing labour per minute offers a more accurate way to apply wage increases. However, not all factories calculate labour in this way. It works best with open costing (add link to relevant section above), which is not always appropriate.
• For more detail, refer to FairWear’s labour minute costing guidance.

2. Fair share approach

This method is similar to the labour share model outlined in the ACT Labour Costing Protocol. It calculates the additional amount needed per brand and per product unit. It considers:

• The gap between the lowest current wage and the target wage.
• The total amount required to raise all wages by that gap.
• Each brand’s leverage (based on their purchasing volume relative to total factory output).
• The amount each brand needs to contribute, proportionate to their leverage.
• The premium per piece.

Wage increases can be implemented in two main ways:

Integrated into structural wages:

• Pros: Formal recognition of wage increases; provides workers with greater income security—and often social security—when paired with continued business from brands.
• Cons: Requires most or all buyers sourcing from the supplier to cover the increase; increases financial risk for factories if brands withdraw, potentially affecting competitiveness

Paid as a premium:

• Pros: Enables quick action and immediate impact on workers’ take-home pay, even if only one brand is involved.
• Cons: May not count toward social security or pension benefits; impact is limited by the brand’s purchasing leverage.

A combination of both approaches may offer the most balanced and effective solution

Anne van Lakerveld, FairWear’s coordinator for research and innovation

Anne emphasises:

• Avoid spending excessive time on data collection—prioritise action
• Actual wages fall short of living wages in all production countries. This is a known human rights risk.
• Brands are responsible for ensuring that the prices they pay allow for decent wages. 
• Take the first step toward improvement.

In this video: Jaap Rijnsdorp, CEO at Schijvens Corporate Fashion

Jaap discusses Schijvens’ living wage project and how the company built a practical costing model to support it:

• Workers were surveyed to understand their basic income needs.
• Calculating a living wage can be complex, but buyers need a simple, workable approach.
• Schijvens calculated a living wage premium to add to each item.
• This premium applies only to the cost of making (CM) and is kept separate from the overall item price.
• Suppliers and quality control agents are not allowed to take a margin on the premium, helping to keep the retail price lower.
• The approach is communicated transparently to Schijvens’ customers—other businesses such as retailers. The $0.10–$0.30 increase is either covered by the customer or by Schijvens.
• Schijvens partnered with Zeeman to further develop the methodology.

Mujtaba, MYM knitwear, Pakistan (Schijvens’ supplier)

Mutjaba shares the impact of the living wage project on workers:

• Worker turnover has decreased. 
• Workers have a more positive attitude. 
• “Workers are happy to work here. This is the impact of the living wage.”