Sheffield Council is to offer discount business rates to firms paying workers the Living Wage Foundation rate.
The rate is currently £8.25 per hour outside London, £1.05 more than the new minimum wage set by Government which comes into effect in April.
Sheffield Council wants more local businesses to join the scheme and will award up to £500,000 in discounts.
The move is aimed at benefiting small businesses and charities in particular and will be introduced in the new financial year,
Coun Ben Curran, cabinet member for resources, said: “This is about people being paid a fair wage for the work they do.
“It’s a core element of our vision to create are more inclusive and prosperous economy in the city, where ordinary working people benefit.”