How to Adjust Your Benefits and Pay to Account for Inflation
From spring of 2021 to spring of 2022, the U.S. Bureau of Labor Statistics (BLS) reported an 8.5 percent rise in consumer prices, meaning that workers’ salaries are no longer worth as much. Moreover, driven by supply chain disruptions and post-lockdown demand for goods, price increases will continue to outpace wage growth as inflation worsens.
This rising inflation means that the buying power of workers’ salaries is decreasing. In the past year, “realized” salaries decreased by 2.7 percent, indicating that employees’ take-home money is worth less and less. Moreover, the Bureau of Labor Statistics predicts inflation will remain high over the next calendar year. So how can you help your employees weather the storm while making a profit?
With a rise in prices, employers need to offer better benefits and pay to ensure their employees’ salaries aren’t eroded by inflation. There are many different ways to contend with rising consumer prices, from compensation changes to enlarged benefits packages to increased wages and bonuses. Learn how to adjust your benefits and pay to account for inflation, and navigating the current market without losing employees or blowing through your budget below.
Should You Adjust Salary in the Face of Inflation?
Due to inflation, wages have less buying power. Although nominal hourly earnings have increased 5.1%, “real” wages have decreased by 2.6%. Though it may look like workers are making more money, it is worth less. How do we deal with these rising prices?
Adjusting salary in the face of inflation can feel like chasing a moving target. As you increase your employees’ salaries, inflation wipes out the added value. On the other hand, if you increase workers’ wages and the economy returns to normal, you’re stuck overpaying for labor. But if you don’t keep up with the dollar’s changing value, your employees may not be able to afford their living expenses. It’s a lot to balance but read on to learn whether (and how) you should adjust salary in the face of inflation.
Consider How Inflation Affects Your Workers
When deciding whether or not to adjust salary in the face of inflation, consider how rising prices affect your workers. While inflation affects almost every corner of the market, there are three areas where consumers feel the effects most harshly: gasoline prices, food costs, and housing/living expenses.
To commute to work, your employees need to be able to put gas in their cars. In order to stay alive and alert enough to be productive, your employees also need to be able to afford to eat well. And to sleep at night or work remotely from home, your employees need to be able to keep a roof over their heads by regularly paying their rent or their mortgage. While slight rises in consumer prices won’t impact workers’ ability to afford these necessities, employees will feel the burn sooner rather than later if inflation continues. But how should you, as an employer, soften the burden of these rising prices?
One of the most important things to consider is whether your employees are wage workers or salaried employees. While inflation affects all employees to some degree, wage workers are often hit the hardest by rising prices. For example, if gasoline prices double, it will be much harder for someone making $10 an hour to spare the extra cash than it will be for someone making $70,000 a year. The wage worker will now need to work overtime to make ends meet, leading to burnout. So, if you employ more wage workers than salaried employees, adjusting hourly wages to account for inflation is often more necessary.
Keep Up With Your Competitors
When deciding whether to modify your pay to account for inflation, keep tabs on what your competitors are doing. In this market, a competitive wage (and competitive benefits) are necessary to recruit and retain top talent. To ensure your salaries are fair, track data on wage changes and pay close attention to changes your competitors are making. If you notice they’re adjusting their pay or benefits in the face of rising prices, adjust accordingly to ensure you won’t lose out to your competitors. Additionally, keep a close eye on inflation projections to ensure your plans are sustainable long-term.
Review Pay Rates More Often
As consumer prices cut into employees’ paychecks, many companies are rethinking how they approach raises. For example, some organizations are doing semi-annual salary evaluations rather than reviewing pay rates annually. By re-examining salaries quarterly rather than annually, human resource departments can keep up with industry trends and adjust salaries accordingly. In addition, these evaluations help businesses keep positions filled, ensuring that employees are happy, well-paid, and won’t leave for greener pastures.
However, raising an employee’s salary or hourly wages is not the only way to keep up with inflation, and it may not even be the most effective way to deal with the issue at hand. Instead, you should consider one-time bonus payments. These bonuses show that you recognize that the base pay is not worth as much as it used to be, but it also gives you room to breathe. With a one-time bonus, you won’t be locked into a sky-high salary once inflation calms down. In addition, this bonus allows organizations to increase pay without being locked in to future raises, making it a more sustainable option that satisfies employees’ short-term and long-term needs.
Reassess Your Budget
Whether you opt for a salary hike or a one-time bonus, paying your employees more means you need to find that money somewhere else. Reassess your budget and see where you can find the funds for increased labor costs. Maybe you can raise the prices of your products or services or cut back on spending in another area to accommodate higher wages.
Additionally, measure salary increases against productivity gains to ensure raises don’t outpace productivity. Salary hikes and wage increases won’t hurt your budget or profitability if an increase in output accompanies them.
How to Adjust Benefits in the Face of Inflation
Download: How to Adjust Your Benefits and Pay to Account for Inflation
While pay increases are one way to contend with inflation, it’s not the only option. Adjusting benefits can be just as effective as a salary hike, and sometimes more so. Benefits improve the employee experience, making workers more likely to stick around even in the face of inflation. And often, benefits help to win employees over more than bonuses or one-time payments, demonstrating a commitment to their overall wellbeing rather than to their pocketbooks. Additionally, offering benefits is often less expensive than recruiting, hiring, onboarding, and training a new employee to fill empty positions, making it more affordable for many business owners..
Upgrade Your Retirement Plan
In September of 2021, Betterment conducted a survey and discovered that 65% of workers would consider leaving their current positions for a new employer with a better 401(k) plan. Upgrading your retirement plan can mean increasing your employee match from 6% to 8% like KPMG or meeting your employee’s needs in some other way. But whether you decide to raise contributions or start a 401(k) matching program, upgrading your retirement plan keeps employees satisfied. A robust retirement plan shows that you care about their present financial needs, but it also demonstrates that you care about providing for them in the future, building loyalty that is not easily bought.
Subsidize High Healthcare Costs
Health care inflation lags a bit typically due to the way contracts are structured, meaning that high prices can be expected to last for at least a year even if consumer prices go down overall. So, to benefit employees, companies can help subsidize these high healthcare costs by contributing more to workers’ healthcare plans. This also benefits your budget because the employer-paid part of an employee’s premium is not taxable income. As a result, the money you spend on healthcare is more impactful than the money paid directly to an employee, giving you more value for your dollar.
Consider Hybrid Work Arrangements
Another way to retain employees without breaking the bank is to adopt a hybrid work arrangement. By allowing employees to work from home or the office, you’re helping free up both time and money for other tasks. For example, employees will spend less money on gasoline when they work from home and have the freedom to run to the grocery store on their lunch break and spend more time with their loved ones in the morning. Additionally, working from home also saves employees money on child care and pet care, freeing up valuable space in their budget without stretching the company funds too thin.
Provide Top Quality Technology
Another way to invest in employees without breaking the bank is to supply top-quality technology. Whether that means the latest Macbook, new data management software, or a state-of-the-art PC, providing your employees with tech shows that you’re invested in them and increases productivity. When technology is used well, it helps employees work more efficiently, making their jobs more manageable and less burdensome. Automation also boosts productivity, giving you a competitive advantage by cutting down on some repetitive or mundane tasks employees have to perform daily.
Additionally, HR management tools can help you clear up bottlenecks in the workplace, giving your employees the space to perform their duties without undue oversight. These tools can also enhance community and collaboration, making it easier to work together as a team in the office or at home.
Account for Inflation and Offer Better Benefits with Canal HR
Inflation affects more than just consumer prices. It affects employees, employers, and the very ways in which we operate our businesses. To stay mindful of employee needs without going over budget or losing valuable talent, you need to keep up with your competitors and review pay rates more often. Then, if you decide that a pay increase is the best move, find room in your budget and allocate funds accordingly.
However, pay increases are not the only way to help employees deal with inflation. Building a competitive benefits package or expanding your existing one can help you meet employee needs without breaking the bank or committing to long-term pay raises. Robust benefits packages are one of the best ways to retain current employees and recruit new ones, and this is even more true in the face of inflation. From upgrading your retirement plan to subsidizing rising healthcare costs, building a benefits package helps you invest in your employees’ long-term and short-term wellbeing. And when you also consider money-saving and productivity-enhancing benefits like hybrid work environments and top-quality technology, you can increase your profits without sacrificing employee satisfaction. A healthy, well-cared-for workforce is a productive workforce, so investing in your employees’ well-being on the front end always pays off. And because benefits, especially tax-deductible ones, give you more bang for your buck, you can save money while keeping your workers happy.
Contact Canal HR today to learn how to optimize your budget, give ethical and sustainable raises, and build a world-class benefits package. As part of our PEO services, we are experts in employee satisfaction, building a benefits package, or devising a strategy that works for your company.
To learn more about how Canal HR can help you adjust your pay and benefits package to help both current employees and new candidates weather inflation, reach out to us today for a free, no-obligation consultation with one of our dedicated experts.