The London Living Wage will rise to £13.15, giving over 130,000 employees an income boost after an announcement earlier this week.
Businesses and public sector bodies have six months to implement the rate, up from £11.95, to maintain living-wage employer status.
The rate, set by the Living Wage Foundation reflects the inflation which has plagued the UK in recent years.
Mayor of London, Sadiq Khan, said: “The security of fair pay and a regular and reliable wage will help build a more prosperous city for all Londoners.”
The capital’s higher prices give a higher rate compared to the UK Living Wage which rose to £12 per hour from £10.90.
However, neither rate is mandatory, unlike the National Living Wage, which enforces the governement’s statutory minimum following a name change in 2016.
But Khan added London employers signed-up to the scheme has increased sixfold under his Mayorship.
He also said employees earning under the rate is now down to 13% from 20% in 2016.
He told the BBC: “It’s really important to explain to businesses that may be a bit nervous that this is a pro-business pro-profit policy.”
The National Living Wage currently stands at £10.42 for over 23s
However, the Chancellor Jeremy Hunt has confirmed an increase to at least £11 per hour from next April.
Mercato Metropolitano, a food-court in Elephant and Castle, is a business which agrees to pay the higher London Living Wage.
Andrea Rasca, Founder of Mercato Metropolitano said: “We wholeheartedly welcome the rise in the London Living Wage.
“Londoners deserve a wage that empowers them to enjoy our vibrant city and everything it has to offer – rather than just enough to get by.
“Against a backdrop of the cost-of-living crisis, government and business must come together to build a better society and ensure that workers are fairly remunerated for their commitment to their work.
“There is no doubt that businesses are under increasing and relentless financial pressure, and many are struggling to stay afloat in difficult economic times.
“We would urge those who can pay the London Living Wage to do what they can to support the 10% rise.
“We are facing a crisis not just economically but socially, and it is critical that people are not left behind in our communities.”
Londoners on the living wage will receive an extra £1.20 per hour, £48 per week extra for a 40-hour week.
Over the course of a year this results in an annual salary of £27,352 up from £24,856 previously.
Despite this steep rise, accredited employers appear to remain steadfast in their commitment to the voluntary scheme.
Tracy Paskins, manager of The Woodland Nursery with locations in South East London, said: “I do welcome the news of the increase in the Living Wage, although this will be a financial stretch for us as a company.
“I pay my staff the Living Wage because I believe in the fundamental principle that every individual who contributes their time and skills to our company deserves fair compensation that not only meets their basic needs but also recognises their inherent dignity and worth.
“By paying the Living Wage, I ensure that my employees can lead dignified lives, support their families, and participate in the economy without the burden of financial stress.
“This commitment to fair wages not only promotes a healthier and happier workforce but also reflects our dedication to social responsibility and ethical business practices.”
She added the rise will come into effect as of 1 January 2024.
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