With UK workers facing a cost of living crisis, and employers able to only offer so much in the way of pay increases, how might organisations help wages go further? Ashleigh Webber reports
As the cost of living continues to soar, employees’ finances have never been so squeezed. Not only are pay settlements failing to keep up with inflation – despite their biggest increase in a decade – staff are facing escalating bills for their energy, public transport, petrol, and food, which last month reached its highest price for 13 years.
While the Bank of England has insisted that rising inflation – which is predicted to surpass 7% in April – is a temporary side-effect of the post-pandemic economic boom, the war in Ukraine and economic sanctions on Russia have exacerbated concerns for consumer prices in the UK. The UK imports around 13% of its fuel from Russia, and the Institute for Government predicts that any disruption to the supply of energy to Europe will affect wholesale prices here, causing bills to escalate further.
The obvious solution to ease financial worries would be to offer pay settlements in line with, or above, inflation, which rose to 5.5% at the consumer prices index measure in January 2022. But for most employers this is not possible.
The governor of the Bank of England has warned – and quickly backtracked on comments – that employees should not ask for large pay rises if they want to see costs stabilise. The Treasury has also urged public sector pay review bodies to refrain from basing pay settlements on private sector pay if they wanted wages to remain affordable.
Organisations risk an unengaged and distracted workforce if they are unable to help alleviate cost of living concerns.
“Mental health and money are connected as, whether we like it or not, money is a fundamental factor in most of our life choices,” says Dannielle Haig, director and business psychologist at leadership development consultancy DH Consulting.
“It’s understandable for people to develop financial anxiety and concerns over financial security during economic turbulence. When we feel this way, it can overwhelm us psychologically and that has an obvious impact on other areas of our lives such as work, where we become disengaged, demotivated and generally exhausted from lack of sleep and cognitive and emotional fatigue.”
Dr Erman Misirlisoy, chief scientific officer at health tech brand ZavFit, which provides financial education, notes that productivity and physical and mental wellbeing can slip when money is a concern.
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“For most people, money is a limited resource and using it in one area of life means you have less to use in another area of life,” he says. “This is all a difficult balancing act, and the threat of getting it wrong can make us lose focus at work too – the one activity keeping us financially afloat. Without careful attention to managing our relationship with money, it’s impossible to stay healthy and positive.”
Scale of the problem
A recent survey by financial wellbeing platform Mintago found that 36% of millennials felt money worries had impacted their work performance.
Chieu Cao, Mintago CEO, says: “Organisations who don’t consider their workforces’ financial wellness could find it difficult to retain staff. Consequently, a transient and unhappy workforce is likely to emerge.”
According to the StepChange Debt Charity, 15 million people in the UK are struggling to pay their energy, food and clothing bills, and the number of people finding it difficult to meet their financial commitments has doubled since the start of the pandemic.
Employers are cognisant of the financial pressures staff are under, with a survey of more than 500 HR-decision makers by group risk protection sector body GRiD finding that 50% feel an increased responsibility for staff financial wellbeing. This is reflected in the number of organisations adjusting their pay budgets from their initial autumn predictions, suggested Tim Kellett, director at reward management consultancy Paydata.
“It’s also the first time in over 10 years that the most common review is not 2% – it is 3%,” says Kellett. “Considering our market database covers over 300 organisations, it has taken a lot for that figure to change.”
I think employers have not been meeting inflation-levels because many reviews were signed off in the autumn, when inflation was lower” – Tim Kellett, Paydata
Despite these apparent gestures of goodwill, the average settlement is a way off what employees and unions are demanding, he suggests.
“However, 3% is still nowhere near current inflation. Yes, unions have been pushing for that, but I think employers have not been meeting inflation-levels because many reviews were signed off in the autumn, when inflation was lower; and the increase in National Insurance contributions this year has impacted affordability.”
Paydata’s latest pulse survey showed that the percentage pay bill increase at the lower quartile had risen to 2.6% in February, versus the 2% that employers had planned. However, 60% of firms have not changed their planned pay budget.
“These headline pay awards only tell half the story though,” says Kellett. “While most employers have kept their awards to 3%, they will often have set aside a further amount [1% or more] for any out-of-cycle increases/pressures. With the labour market being so competitive at the moment, I’m anticipating higher figures on this side.”
Employer action
Several businesses have stepped up to offer staff support with their bills. Birmingham-based That Recruitment Company is awarding staff a 5% pay rise in recognition of the rising cost of living.
“£30k now, is not the same as it was three years ago,” said chief executive Chris Stringer told the BBC. “The energy increase is concerning. Everybody is struggling now. I don’t think you should work just to pay the bills.”
The chief executive of energy consulting firm RSL Renewables, which has also increased pay, didn’t want staff to be worrying about heating their homes. Last week several energy suppliers including British Gas and Bulb announced price increases from April.
“I want people to leave their stresses at the door. But you can’t do that when you have a massive bill to pay, you’re not going to perform,” Stephen Clayton told the BBC. “Normal people will be choosing between eating and heating, and that shouldn’t be the case.”
But a salary rise is not the only way to help employees with the cost of living crisis, especially when employers are themselves feeling the pinch.
Employers may worry that offering financial wellbeing support could be seen as overstepping a boundary between individuals’ work and private life, but it can be valuable and easy to offer at relatively low cost.
“Whether this entails taking the time to educate their staff or providing benefits that help stretch their salary, employers should dig deep to ensure their workforce takes the right steps to financially secure their future,” says Jamie Mackenzie, director at Sodexo Engage, who points to the availability of financial education or salary sacrifice schemes.
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Kellett says many organisations that have been represented in Paydata’s HR workshops have offered financial wellbeing workshops for staff and have amplified their communication of existing benefits including season ticket loans and interest-free loans, as well as promoting flexible and hybrid working opportunities that some employees may have used to cut commuting costs.
Private healthcare, insurance, and increased support for lifestyle benefits such as gym memberships and discount codes can also benefit employees’ financial health, Haig adds.
Encouraging sensible pension choices
Cao says that an existing employee benefit – the workplace pension – is an obvious place to start. Mintago’s research found that over 55% of millennials wanted their employer to improve access to their workplace pension scheme.
“A great starting point would be to make information surrounding employee pension schemes more accessible and making changes to their pension contributions easier,” says Cao. “This should involve all areas of the scheme, from explanations regarding contributions, to them being able to see the total value of their pot. There are numerous ways an employer could do this: from company pension newsletters to digital workplace pension platforms.”
A great starting point would be to make information surrounding employee pension schemes more accessible and making changes to their pension contributions easier” – Chieu Cao, Mintago
During times of financial strife, many individuals slash costs that they deem non-essential. Some, particularly younger employees who see retirement as a distant issue, may be tempted to reduce pension contributions or pull out of company pension schemes altogether. Employers must ensure they communicate the long term financial risks this can create, says Rachel Meadows, head of proposition, pensions and savings, at employee benefits provider Broadstone.
“One of the biggest risks is that an intended short-term break becomes a protracted gap, causing big problems for longer term financial resilience,” she says. “Busy lives take over; no month is a ‘cheap month’, and it can either never feel like a good time to re-start saving, or you quite simply get distracted and forget.”
By reducing their own contributions, employees might also reduce their entitlement to employer contributions, she adds. “In the worst case scenario, reducing or stopping their own contributions might also cease their employer contribution entirely. Giving up an entitlement to valuable ‘free’ money from their employer in pension contributions is never a great financial move.”
Meadows suggests offering employees access to impartial guidance to enable staff to “sense-check” their pension plans.
“For employers that already offer access to guidance, making sure that payroll or HR ask the question ‘have you had a guidance meeting?’ before acting on requests to reduce contributions can be a really effective, simple and free way of helping staff and reminding them what support is on offer,” she adds.
Prevention is better than a cure
Although employees are already feeling the pinch, taking action to prevent money stress before it becomes a major crisis is often better than responding once it is a problem, suggests Anna Freeman, CEO at fintech platform ZavFit.
“By expecting that many people within your organisation will be suffering from anxiety with their money, you can provide space for people to be vulnerable. This isn’t often encouraged in the workplace,” she says.
We very rarely receive useful information and lessons on personal finance and tend to pick up information as and when we need to, which can lead us to making emergency decisions rather than long term plans and actions” – Dannielle Haig, DH Consulting
By creating a culture of openness surrounding money, with business leaders leading by example, Freeman suggests employers can deal with issues before they overwhelm individuals and start to affect productivity.
“We can help our employees to understand that we cannot always control how much money we have, but with the money we do have, we can control how we are using it and how we think about it,” she says.
Cao adds that one-to-one meetings between managers and their staff could help staff feel more comfortable about raising financial concerns that could impact their performance.
Developing skills
Providing financial education can often be more beneficial than a salary increase in the long run – and can even equip employees with “life-changing” skills, suggests Haig.
“We very rarely receive useful information and lessons on personal finance and tend to pick up information as and when we need to, which can lead us to making emergency decisions rather than long term plans and actions,” she says.
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“Psychological, emotional, and behavioural control over our finances is incredibly empowering and can make huge differences and improvements to all domains of our lives as well as our mental and physical health.”
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