Workers across the country are concerned about the impact of growing inflation on their take-home income.
The rate of inflation has risen faster than projected. According to figures from the US Bureau of Labor Statistics, consumer prices rose 0.9 percent in October, bringing the year-over-year gain to 6.2 percent, a 30-year record.
Is it mandatory for employers to keep up with inflation?
In general, the answer is no. The labor market, which, like all markets, reflects supply and demand, typically determines compensation, which includes salary, paid time off, sick leave, parental leave, and other benefits. It does not, and does not need to, directly reflect inflation.
Is a wage raise for inflation required in the United Kingdom?
The pay review is an important aspect of the incentive cycle, and most medium to big companies do one at least once a year. The pay raise that results can be set by cost-of-living adjustments for all employees, company performance, or highly differentiated individual increases depending on performance or development.
Employees in the United Kingdom, on the other hand, have no legal right to a yearly salary increase, even if it is based on inflation. So, what does this imply for a worker?
You can expect to talk about compensation or a pay raise at least once every 12 months, but it’s ultimately up to employers to decide whether and when to raise employee pay.
Will companies respond to inflation by raising wages?
According to a March 2022 study by Mercer, a human resources consulting business, 45 percent of employers do not include inflation into compensation, and just 25% claimed they will make salary budget modifications as a result of inflation. However, the same survey indicated that compensation was the primary factor for turnover for 77% of respondents. Meanwhile, corporate earnings are at an all-time high, surpassing those of the previous 70 years. Why aren’t more companies raising pay, given that we’re in the midst of the Great Resignation, in which record numbers of employees are quitting their jobs?
Employers aren’t used to adding inflation into pay, in part because they aren’t used to it. Wages were strongly tied to inflation in the 1970s and 1980s, when inflation rates were in the 3-14 percent range, according to Jason Furman, a professor of economic policy at the Harvard Kennedy School. Labor unions lobbied for language in contracts that incorporated cost-of-living adjustments beginning in the 1970s. As inflation rates leveled off, 3 percent wage increases for cost-of-living adjustments became the norm.
While most businesses debate compensation budgets for the coming year in September, most individuals didn’t realize last autumn that inflation was here to stay, according to Furman. “It wasn’t crazy to imagine that inflation was transitory if you were a corporation in October last year,” Furman argues. “It’s now obvious that we’ll have another year of inflation, and possibly several more.”
What steps are employers taking to combat inflation?
The latter element, in particular, led to one significant adjustment for the year: a 10% reduction in employee healthcare rates in 2022, with no change in benefit levels.
“People are continually whining about the high cost of healthcare. “What our employees told us was that they wanted more money in their pockets,” Darren Burton, the company’s chief people officer, said. “The response has been overwhelming.”
KPMG isn’t the only firm concerned about and responding to growing inflation rates. According to the Consumer Price Index, the annual rate of inflation in the United States reached 6.8% in November 2021, the highest in more than three decades. Businesses areand should bethinking about how they can help, says Stephanie Naznitsky, an executive director with human resource consulting firm Robert Half. With those large hikes hitting employees in all aspects of life, employers areand should bethinking about how they can help. That urgency is amplified in today’s hot job market, where a large number of people are willing to leave their existing jobs in exchange for higher income and better benefits that can help with mounting costs.
“Rising living costs are affecting the entire workforce,” she explains. “This is something that employers should address.”
According to Naznitsky, rising inflation rates, among other problems brought on by the epidemic, have caused workers to re-evaluate their current status. “We’re currently in a candidate-driven market. There are more job opportunities than qualified applicants. Workers are aware that, as the cost of living rises, they can seek out alternative chances to improve their circumstances and balance some of the personal living expenses that have risen in recent months.”
When it comes to dealing with rising inflation rates, many companies are turning to a tried-and-true strategy: pay improvements, such as bonuses and salary hikes. According to a recent XpertHR survey, the typical percentage change for overall compensation budgets from 2021 to 2022 is 3%.
According to the Conference Board, companies are putting away an average of 3.9 percent of total payroll for salary hikes next year, the highest level since 2008. Despite the fact that these raises are bigger than in recent years, clever companies will almost certainly go even higher.
“Forward-thinking organizations who wish to overcome the labor scarcity should consider increasing their expected salary budgets by more than 3%, or look into how benefits other than pay can contribute to a great employee experience,” says Andrew Hellwege, XpertHR’s surveys editor.
According to Julie Stich, vice president of content for the International Foundation of Employee Benefit Plans, a nonpartisan organization with more than 8,200 organizations and 32,000 individuals as members, reexamining employee healthcare costs, as KPMG did, is one way employers often address rising inflation. With the latest inflation figureson top of pandemic concerns that are causing staffing issues and supply chain issues, which are projected to drive up healthcare coststhis is a hot topic this year.
“Employers should discuss whether or not to pass on anticipated healthcare expense hikes to their employees,” she says. “In this tight job market, employers may be hesitant to expand cost-sharing.”
To deal with mounting costs, an increasing number of companies are attempting to get creative with their benefit offerings. Employers may choose to invest in perks such as student debt assistance, daycare subsidies, or fertility benefitsservices that directly benefit an employee’s wallet. According to Stich, these investments frequently pay off for businesses.
“She emphasizes that “the benefits of attracting and maintaining essential individuals can quickly surpass any utilization costs.” “The significance of communication, as always, cannot be overstated. Employers must emphasize the importance of the advantages they provide to their workers.”
Employees can be more in control of moving away from expensive locations, for example, or cutting down on traveling to save on petrol or other transportation expenses, thanks to flexibility and remote work, according to Naznitsky.
“If you can assist in those areas, you may be able to save your employees from a difficult commute and commuting expenditures, or you may be able to provide discounts to help with other expenses,” she says. “Ultimately, the discussion revolves around starting salaries and sign-on bonuses, but we’ve seen employers get inventive in order to assist their employees and keep top talent.”
“Retention is critical, and if businesses don’t keep up with rising costs by altering compensation or bonus structures, they risk losing top people,” says Naznitsky. “Finding talent to add to your team is difficult in today’s industry. You don’t want to be in a scenario where employee turnover is harming morale and you have to replace talent on top of that.”
What happens if inflation continues to rise?
Inflation raises your cost of living over time. Inflation can be harmful to the economy if it is high enough. Price increases could be a sign of a fast-growing economy. Demand for products and services is fueled by people buying more than they need to avoid tomorrow’s rising prices.
Will I be paid more in the UK in 2022?
The hourly rate for people aged 21-22 will increase to 9.18 per hour on April 1, up from 8.36. The National Living Wage for those over the age of 23 would rise to 9.50. The apprentice rate will also increase, from 4.81 to 4.30 per hour.
What is a reasonable wage increase percentage in the United Kingdom?
Employee appreciation is an important aspect of developing a productive and happy workforce. Increased pay is one of the most obvious ways to recognize and promote an employee’s accomplishments, but it can be difficult to decide when to do so and how much a suitable pay raise should be.
Each case will be determined by the individual employee’s performance in their role.
Depending on the employee’s level of advancement, you may choose to grant a higher or smaller salary raise. As a starting point, the Office for National Statistics reported a 3.3% average pay increase for most full-time employees in the UK in 2018.
The major factors for an employer would be when the best time to grant a pay raise would be, how much this raise should be, whether several employees deserve the same amount of pay rise, and how best to reward individual employees.
Handling salary increase requests is also a delicate matter, since you may need to refuse a pay raise request at times. Although these situations might be distressing for employees, they can be turned into great experiences if you create goals for them to achieve their desired increase in the coming months.
Is a 3% rise sufficient?
An annual pay raise of 3% may not seem like much, especially in light of recent events in the world. But it’s better than nothing in today’s environment. Remember that little increments add up over time and can culminate in a very high pay.
How does inflation effect human resources?
According to recruitment site Totaljobs, inflation will have a greater influence on the labor market this year than Covid.
According to its Hiring Trends Index, which polled over 1,000 HR professionals, 62 percent believe the rising cost of living will drive employment trends in 2022. This compares to 45 percent who believe candidate scarcity would drive the market and 44 percent who believe Covid cases or limits will drive the market.
Just over a third of respondents (36%) said skills shortages will continue to hamper their firm, and 17% said it would be difficult to attract talent by offering competitive compensation.