Tesco is raising its hourly pay above the Living Wage threshold to £7.62, the supermarket announced this afternoon.
The supermarket, which has just dropped its Bogof policy and is winding down the number of stores that operate for 24-hours, said the 3.1 per cent pay rise would come into effect across the UK "for all established colleagues".
The two year deal includes an increase in the base rate of pay for all store colleagues, giving them "significantly more" than the £7.20 per hour Living Wage, which will come into being from April.
The pay increase, which was agreed in negotiation with the union Usdaw, will come into effect on 3 July.
On top of the pay rise, all colleagues will receive time and a half for Sunday and bank holiday shifts.
Any staff negatively affected will receive a lump sum transition payment worth 18 months of the difference in pay, Tesco said.
Matt Davies, chief executive of Tesco in the UK and Ireland, said: “We’ve spent a lot of time working with Usdaw and colleague representatives to understand what’s important to colleagues.
"Together, we’ve agreed one of the highest pay and benefits packages in retail for store colleagues, and introduced a simpler and fairer pay structure, including one approach to premium payments.
“As well as an increase in pay which puts our hourly rate well above the government’s National Living Wage, we remain absolutely committed to rewarding our colleagues with a pay and benefits package they really value, including a pension, colleague discount and five per cent turnaround bonus."
But the Living Wage has proved unpopular with many in retail and services, with Tesco chief executive Dave Lewis blasting the government last November for partly contributing to an "unsustainable" level of expectations.