Waking up to reports that inflation hit a 40-year high in the year to April, HR teams may struggle to know exactly how to help employees with the rising cost of living. But there are strategies beyond inflation-busting pay rises.
Energy prices have jumped £700 a year, food costs are soaring, and the latest news from the Office for National Statistics is that UK inflation rose to 9% in the 12 months to April, up from 7% in March.
And while the consumer prices index (CPI) rate of inflation has risen to 9%, the retail prices index (RPI) measure is 11.1%. RPI takes into account the cost of people’s mortgages, so some commentators including many trade unions consider it a more reliable view of monthly outgoings.
There have been calls from the TUC for an emergency budget and a poll suggests 8 out of 10 people now support a windfall tax on energy companies to support the cost of living crisis – a move chancellor Rishi Sunak is said to be considering.
In February, the governor of the Bank of England urged “moderation of pay rises” and quickly backtracked on his remarks. XpertHR’s latest analysis of pay settlements shows the median increase in the first quarter to be 3% – some eight percentage points behind RPI.
Cost of living
But with the likelihood that many employees may be struggling with the burden of climbing inflation, what should HR do to help?
Sheila Attwood, pay and benefits editor at XpertHR, says there is “increasing pressure on businesses to ease the cost of living on employees through higher pay awards”.
“Employees have seen their salary rises fall behind the increase in prices, with typical wage rises now worth less than half the (CPI) inflation rate,” she explains.
“This creates further challenges for business – in the tight labour market, those that cannot track wage rises with rising inflation will need to look at other incentives to help recruit and retain the talent they need.”
Be creative with reward
Natalie Quail runs Smile Time, which employs a number of employees in warehouse and marketing roles to support its oral care business. She has offered staff a choice between a pay increase and a condensed four-day week to reduce their travel costs.
“We’ve been in discussions about this for a few months, and as staff now need to come into the office more frequently, they’ve noticed the cost of travel increasing,” she says. “So we offered them condensed hours over four days in a bid to compete with other employers and retain staff.”
Perhaps reflecting the cost of living situation, all staff opted for the pay increase. But involving them in discussions around how to support them has paid off in terms of retention, and there has been no turnover since.
Being more targeted with benefits can also pay dividends. Taxi Studio, a brand expression agency, has tweaked its wellbeing benefits so they include a “special milestone package”. This consists of a first-time buyer’s bonus to help staff buy their first home and includes an additional two days’ leave to help them move and settle in.
Support employees’ mental health
If employees are dealing with worries about having enough money for bills, they’re likely to be distracted while they are at work, says Dr Sofia Gerbase, clinical psychologist with Unmind, a workplace mental health platform.
She quotes research from the Money and Mental Health Policy Institute that shows that two-thirds of employees who are struggling financially show at least one sign of poor mental health that could impact their work performance.
“It goes without saying, but people bring their full selves to work every day – not just the version you expect of them,” she says.
“So, if an employee is worried about their finances at home, they’ll likely do the same at their desk – which can understandably have an impact on their capacity to be productive at work.”
Simple steps such as signposting employees to financial advice or committing to giving employees security over hours can help, she adds.
“A human-led approach is key (think truly listening to employee needs and co-creating solutions, rather than a tick-sheet). Long term, a company-wide culture that champions mental health – where it’s okay to seek help and show vulnerability – is where real (and lasting) change can happen,” she says.
Alongside the headline costs we identify with working such as petrol or train fares, employers should be mindful of other aspects of working that may be impacting employees financially, says Katy Morrison, diversity, equity and inclusion lead at Connect Three, a leadership and management consultancy.
If an employee is worried about their finances at home, they’ll likely do the same at their desk.” – Dr Sofia Gerbase, Unmind
“HR leaders need to understand who will be most impacted by inflation to identify where they can have the most effective support in place. Prioritising financial wellbeing is a critical part of wider employee wellbeing and should not be understated,” she says.
“Alongside reviewing compensation packages, businesses can look at other costs that can be mitigated. Perhaps the worst affected employees could claim travel expenses for their commute, or introduce a car sharing initiative to save on the cost of fuel. Some businesses are going as far as hiring company buses for their workers. Increasingly employers are exploring providing breakfast/lunch or snack drawers to their team. Not only does this allow workers to save money, it can be used to promote physical health through nutrition and energy-boosting options.”
Having an open-door policy for employees who are struggling and being open to suggestions is another simple strategy, she adds: “HR departments can offer confidential one-to-one drop-in sessions to discuss flexible personal arrangements to help employees cope with price increases. For instance, taking a flexible approach to working hours to reduce the cost of childcare, or increasing or reducing days spent working from home to reduce travel or home energy bills respectively.”
The Living Wage Foundation recently reported that the number of employers signed up to pay its recommended hourly rate of £9.90 per hour outside London and £11.05 per hour in London had surpassed 1,000. With high inflation some commentators are predicting these rates could easily reach £11 and £12 respectively, come November when new rates are confirmed.
Nadene Evans, people operations and employment expert at benefits platform Zenefits, says it’s “very much in an employer’s interests” to assist staff through such as period of financial uncertainty, “primarily by paying a fair and liveable wage to help staff achieve a good standard and living, as well as supporting progression to give employees the ability to increase their earning potential.”
But it’s not only about the rate of pay – offering transparency on what employees receive and how they can earn more can also help, argues Anne Mannix, employment partner with law firm Spencer West.
“Offering extra shifts for people who want to earn more may be appreciated,” she says. “Some employees may also be forced to consider taking on another job to make ends meet, so having good lines of communication and being flexible and understanding to accommodate such requests may help.”
This might be a point at which some organisations consider offering staff loans, but Mannix urges caution.
“Some employers are thinking about offering loans, but this is something that needs to be considered carefully. If loans are not being offered across the board, there could be a risk of discrimination claims if some employees are deemed ineligible,” she advises.
Reduce the commute
With the cost of petrol peaking, even getting to work may be a financial struggle for some employees – something employers should be mindful of.
Dr Andrew White, director of the advanced management and leadership programme at Oxford University’s Saïd Business School, believes allowing employees to work from home where possible is the “easiest and cheapest solution”.
It has never been as expensive to travel to work. Commuting is often unproductive and fatiguing.” – Dr Andrew White,Saïd Business School
“In this economic climate, and following the shift in working patterns during the pandemic which proved organisations can operate without being present in an office, modern-day leaders now need to be clearer about the reasons staff work face-to-face,” he says.
“It has never been as expensive to travel to work. Petrol prices are at an all-time high, while rail fares recently rose at the highest rate in nine years. Commuting is often unproductive and fatiguing.”
Organisations should balance whether employees’ presence in the office is really needed and the potential impact on productivity of forcing them to commute to work.
“To be blunt, allowing working from home where this is possible is the cheapest solution, because it won’t actually cost companies anything.”
If coming to work is necessary, employers could think about supporting staff to mitigate costs, says Ami Harrison, client relationship manager at AdviserPlus. “A cycle to work scheme for those employees who live close enough to their workplace to cycle rather than drive could save on fuel costs,” she suggests.
It’s certainly not an overnight solution, but supporting staff to acquire new skills can help with their longer-term career goals and to navigate the changing needs of the workplace.
In the events industry, course provider Event Crowd has developed an events management diploma targeted at employees trying to go further in their careers. Founder Dodge Woodall wanted to support the recovery of a sector that was hit hard during the pandemic.
“Like every industry, we have had to adapt,” he says. “As the events industry recovers from a challenging economic period, losing many staff and with production, health and safety changing vastly over the last few years, we felt we had a responsibility to support the upskilling of new talent in current times.”
This could prove a financially worthwhile option for employers too. A survey earlier this year found that organisations could save up to £49,100 per employee by reskilling staff rather than hiring someone new or making a role redundant, placing them in a better position to support employees through rising costs and increased volatility.