As inflation outpaces wage growth the pressure to raise salaries is on: 10 ways employers can stay competitive in this supercharged market
Inflation is squeezing everyone. While employers are scrambling to cut costs, employees are asking for higher pay to combat the rising cost of living. And with job openings at record highs, companies are having to increase salaries to attract new workers. But as wages grow, so are consumer prices and the costs of doing business, and so the cycle continues.
At 9.1% in June, inflation is the highest in 40 years, driven by increased demand and lower supply stemming from Covid-19-related supply chain issues and business disruptions, as well as rising energy prices, among other factors. As workers pay more for rent, food, gas, healthcare and other necessities, companies, too, must pay more to run their businesses.
To hold on to workers, employers must adjust their compensation strategies.
Pressure for Higher Wages
During the second quarter of 2022 ending in June, compensation costs for civilian workers increased 1.3% over first-quarter levels, with wages and salaries going up 1.4% and benefit costs increasing 1.2% from March, the U.S. Bureau of Labor Statistics reported on July 29. Compared to a year earlier, compensation costs rose 5.1% percent for the 12-month period ending in June, with wages and salaries rising 5.3% percent and benefit costs going up 4.8% for the 12-month period ending in June 2022.
But that’s half the story. Adjusted for inflation, wages and salaries declined 3.1% in the past year, and benefit costs dropped 3.5% percent over that same period. So while wages are higher, their purchasing power is lower because of skyrocketing prices due to inflation. As a result, employees are seeking and expecting higher salaries.
Meanwhile, the labor shortage continues to put pressure on employers to raise wages and improve benefits. At the end of May there were 11.3 million job openings, nearly two open positions for every unemployed person.
10 HR Inflation Strategies: What Employers Can Do
1. Pay Competitive Wages
It’s a matter of supply and demand. Employers whose pay is more competitive, not just for new hires but for all employees, will secure the best talent in a tight labor market plagued by inflation.
2. Give a One-Time Inflation Bonus
Employers that are not able to raise wages can offer one-time bonuses to help offset some of the higher prices their workers are paying. More importantly, a bonus increases goodwill between employers and employees.
3. Increase PTO
Another strategy to combat the effects of inflation on labor is to increase the amount of paid time off. This move helps retain existing workers and attract new hires.
4. Offer a Four-Day Workweek
A shorter workweek is attractive to many employees because it helps cut down on commuting and daycare costs and gives them more time during the week to run the business of their lives. In addition, numerous studies throughout the world show that shorter workweeks can actually improve productivity, which benefits employers.
5. Continue Remote Work
By now, many employees are used to working remotely since the pandemic forced them to work from home. Continuing or switching to a remote workplace helps cut down commuting, childcare and other work-related expenses. Employers, too, see savings from lower operational costs.
6. Consider Workers Most Affected by Inflation
Low-wage workers are especially affected by inflation, as they struggle more to cover basic expenses, which hinders their ability to be engaged at work. Retail and food sector employees are more at risk, especially in these post-pandemic times when more people shop and dine at home. Employers should evaluate their own minimum wage and bump it if necessary to provide a decent living wage, particularly in higher-cost markets.
7. Increase Retirement Contributions
It may not be as powerful as a salary raise, but increasing the amount contributed to retirement accounts or starting a contribution can have a positive effect on employees, especially when tax benefits are involved.
8. Boost Transparency
Most companies have a tendency to not share how wages are determined, leaving employees to assume they’re being underpaid and to seek greener pastures. Explaining how compensation is set shows employees that there is a valid reason behind what they’re being paid and encourages trust and goodwill.
9. Reduce the Cost of Benefits
In some cases, employers are able to pay more toward employees’ health benefits, allowing them to take more of their current paychecks home to pay for expenses.
10. Offer Student Debt Assistance
Student debt relief is another way employers can help their employees cope with inflation. Student loan assistance can potentially be given without increasing an employee’s taxable income.