- Employee Benefits and Wellbeing
- Managing the pay rise pressure during the cost of living crisis
We are all increasingly aware that the cost of living is rising significantly and that many people around the country are beginning to struggle financially. Current predictions are that although some people will get larger pay rises than normal this year, inflation will be higher than most of these wage rises, so people will notice a real terms cut in their income levels.
The Chancellor’s recent Spring statement introduced some measures designed to ease the increasing financial burden on households, but has also been widely criticised for not going far enough.
Here we look at some of the reasons why financial pressures are increasing, and what you, as small business owners and managers, can do to try to reduce the impact of the growing financial storm on your staff, while looking at other ways to motivate and retain your workforce.
Why is the cost of living rising and what other employer financial pressures are there?
There are a number of factors here:
- the substantial hike in energy prices, leading to substantially higher bills from April for staff and businesses,
- the knock-on effect of the energy crisis on the costs of manufacturing and transporting other goods,
- the further economic impact of the Russian invasion of Ukraine,
- the inflation rate in the UK, currently at a 30-year high and expected to rise further this year, with its impact on everyday food and essentials,
- the increases in National Insurance Contributions from April, for both employees and employers, slightly offset from July by the rise in NI thresholds to £12,750 before staff start paying NI, and
- the rise in minimum wage levels in April, with a 6.6% increase in the National Living Wage, for all those 23 and over, to £9.50 per hour.
Smaller businesses and charities will feel the pressure of this more than larger companies, as they often have less scope to offer large pay rises to staff. There is also the threat of losing staff to the ‘Great Resignation’ as employees can increasingly shop around for roles which suit them better, which adds to the pressure to pay competitive salaries and makes employee retention strategies ever more important.
There are some arguments against a kneejerk reaction to pay rise pressure, which can sometimes lead to higher salaries for new recruits but increasing resentment and dissatisfaction from existing staff. And just hiking salaries, even if you can afford it, may not be a sensible approach in the long term if one consequence is to help inflation to continue to rise. According to the CIPD, the issue is not that pay growth is weak, it’s that prices are running even higher.
So we’ve taken a look at what else, other than salary increases, you can do to show your employees that you are thinking creatively about how to support them as best you can, and to encourage them to stay with you and not look for greener grass elsewhere.
What other related financial incentives could we consider?
Here are some ideas you can consider which provide financial incentives to staff other than salary increases… we hope that you can find a quick win or two here for your company!
- Looking at benefits packages
You may already operate a benefits package for staff that gives them assistance with childcare or travel costs, or enhanced levels of sick pay over and above statutory rates. This might be a very good time to review the package you have on offer, to see if there is anything you can add to or change that will give employees additional support and chip away at costs.
We know, for example, that some businesses are considering offering temporary additional payments (eg an “energy bonus” to staff to make a contribution to their increased energy costs just until fuel costs stabilise.
Other companies support staff with other particular living costs such as childcare or travel expenses, and some are trying to help by offering places on financial management training courses that staff can take up. You could peg this to say the price of petrol—so you help your people when the costs are above a certain level, but don’t end up with an ongoing cost if/when fuel prices return to a more normal level.
- Pay transparency
We are currently seeing an increase in requests to carry out benchmarking surveys for our customers, to test how competitive their salary packages are for certain roles. It is always best to try to pay competitive rates to attract and retain high quality staff, but we realise how much of a stretch that can be to many businesses already coping with negative impacts on their business caused by the Covid pandemic.
It is well worth remembering that research has shown consistently that non-pay factors are more important than pay in determining staff satisfaction. And that lots of people prefer knowing how much they matter at a smaller company than at a larger employer. Pay is important but not everything!
Having a dialogue with existing as well as new staff about the results of any benchmarking exercise can help with perceptions of pay transparency.
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What non-financial incentives could we consider?
As we know how stretched many businesses are financially, it’s also really important to have a look at how to reward staff as part of the wider employee experience, not just focusing on salary and benefits. Here are a few suggestions of what to consider.
- Flexible ways of working
As we emerge from the pandemic restrictions, many businesses are now embracing more flexible way of working. This could be a hybrid working model, which allows staff to split their time between working from the office and working from home. There are also other ways to accommodate the personal pressures of staff with children, for example, by looking at slightly different working hours, or even term-time working.
Allowing more flexibility to work from home is very likely to reduce commuting costs for instance, which might even completely make up for the rise in home heating costs for some, it may also result in higher heating bills for staff, too. You may want to consider whether you think it would be fair to let staff expense a proportion of their heating costs as well for people now working from home.
- Opportunities for upskilling and career progression
The CIPD’s latest quarterly Labour Market Outlook found evidence that employers are already increasingly advertising roles as flexible and are upskilling existing employees to help overcome labour shortages.
Are there opportunities for career progression or skills development within your organisation? This can certainly help with employee retention if staff can see opportunities to increase their qualifications or experience while they work with you, or can see realistic opportunities for promotion.
- Strong company culture with focus on employee wellbeing
Building a strong company culture to encourage retention is increasingly important. Would your staff say that your business is a desirable place to work? Do they have a real sense of your company values and support the way you want to run your business?
If you are unsure about the answers to any of these questions, it may be time to think some of this through more carefully.
In particular, at the moment, a known and clear focus on employee wellbeing could well help staff as they try to negotiate the uncertain financial times ahead. Do you have an Employee Assistance Programme or other ways for staff to raise confidential concerns about mental health? These services can also give staff access to help relating to their personal finances and debts which could become quite important.
Making clear what you are hoping to do to support staff through the cost of living crisis, and how that is part of your overall company culture, can only help.
Using anonymous staff surveys can help you get honest feedback from your team which might help you understand what the major issues are- which could help you decide what you can best do to help. (Citrus HR survey tools make this quick, easy and free for our customers.)
- Open conversations with staff
Above all, we recommend keeping a regular dialogue going with your staff, whether together at company meetings and events, or individually through one-to-ones, which can often be a good way to spot any signs of tension or particular financial stress.
Of course it is not just people that face these pressures—your company might also be faced with increased costs. It can be really helpful to talk to your team about how your company is faring at the moment, which may help them understand why you can’t give them a massive pay rise. Talking to your team honestly and regularly is a great way to keep them feeling engaged and trusted.
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If someone has significant financial struggles it is likely that this will impact work, as their mind may not be on the job as much as it should be. It can also impact their health. Having an open culture will hopefully ensure they discuss concerns with you, and you may decide to look at other ways to help. If you are in a strong cashflow position then you could consider offering loans to some staff which can be repaid through your payroll. Though you should make sure that this really would help them, rather than cause a larger problem for people in future. And of course this puts some risk on the employer in case the member of staff leaves at some point before the loan is repaid, and is unable or unwilling to repay any balance.
And a final thought – if staff feel incentivised to work smarter rather than harder, and increase their productivity, that may well help to offset any need to increase salaries at this tricky time for everyone. It may be worth introducing a reward scheme for any ideas people suggest which can help the company save money or grow sales.
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