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The Covid-19 pandemic put undue pressure on businesses and households alike, with thousands of companies closing their doors and millions of workers having to endure unpaid leave, furlough, or redundancy.

Two years on, all Covid restrictions in England have since been lifted, which has seen most people and businesses able to get back on their feet, but now there is a new challenge: the cost of living rising to its highest point in more than three decades.

What is causing the rising cost of living?

The Ofgem energy price cap has been increased by 54%, meaning the average household can expect to pay £693 more per year. This is due to the increase in the price of wholesale gas. On top of this, crude oil prices have also increased on a wholesale basis, meaning petrol and diesel prices have soared, and people are paying more at the pump. Compare this to the start of the pandemic when prices dropped to below £1 per litre, we’re now seeing prices exceeding £1.55 per litre.

In addition to gas and oil prices rising, there have been severe supply chain disruptions that have caused gaps on shop shelves, therefore pushing the price of basic necessities like food up, and that’s not all. In order to bridge the gap in health and social care caused by the demands of the pandemic, the government announced a 1.25% increase in National Insurance.

The NI hike means someone earning an average salary of £26,000 will pay an additional £130 per year. This doesn’t sound like much, but combined with the rise in household bills and the expectation that inflation could surpass 7% this year (this means goods like food, fuel, travel tickets, and mortgages could be as much as 4.7% more expensive than in 2021 - a 30-year high), it’s easy to see how people will be feeling the pinch.

man counting using calculator

The cost of living and employers 

As an employer, you can’t control things like inflation and the rise in energy prices, but you may find that your employees look to you for assistance and support during times of financial stress. With the cost of living rising faster than wages, it’s natural that you may need to reassess how you aid your employees and help ease the burden on them.

Financially, you may be thinking that you can’t afford to increase wages, especially if your wholesale prices have increased or if you’re still dealing with the effects of the pandemic, but if you fail to accommodate the rising cost of living, you may find that your employees jump ship.

After all, the pandemic saw employees consider their work situations carefully and led to what is now known as The Great Resignation – and this is continuing into 2022. In fact, a recent survey found that 29% of UK employees are thinking about getting a new job this year. Of these, 23% say that a lack of a pay rise is a driving force.

From an employment perspective, when these figures are considered, you need to think if you can afford not to accommodate your employees as the cost of living soars. Few employers will be able to match pay awards to the rate of increase in the cost of living, but meeting somewhere in the middle would go a long way to supporting staff. It’s not all money-related though – there are multiple ways you can look at supporting your workers during times of financial unease.

Flexible work arrangements 

Flexible working remains a key aspect of employee retention, with a quarter of people who are considering leaving their jobs delaying doing so because they don’t want to lose their ability to work flexible hours from home. In addition to being a major player in terms of attracting and retaining talent, allowing your employees to work flexibly can ease some of the pressures associated with the rising cost of living.

For example, if your employees can work from home for all or part of the week, they won’t need to pay as much in the way of commuting, allowing them to retain more of their money rather than spending it on increased tickets and pump prices.

Another way flexible working can help ease the increase in the cost of living is through your employees being able to claim tax relief on part of their water, gas, and electricity bills. They can only do this if they are mandated to work from home, but given how important flexible working has become to employees, it’s certainly something to consider formally implementing if you haven’t already.

couple discussing bills

Pay rises in line with the rising cost of living 

As mentioned, one of the main factors affecting employee retention is pay. Traditionally most employees expect their wages to rise at an equal rate of inflation – so if inflation rises by 3%, it’s reasonable that your employees will expect a pay rise of 3% to accommodate the increase in the cost of basic goods.

With inflation so high this, this won’t be affordable for many employers. However, you will need to consider how the pay you offer your employees falls in line with their needs, and if you’re hesitant to increase their compensation, think about whether you can afford to lose them and how difficult it might be to hire someone new in a market where there are more vacancies than available employees.

Consider wellbeing employee benefits 

Another way you can accommodate your employees and the cost of living is to offer additional benefits that can help them not just financially, but also in terms of overall employee wellbeing. For example, you could look at offering vouchers for things like childcare, the gym, counselling, or subsidised travel tickets for those who get on the train/bus. We are also hearing of more employers reviewing how they can help support employee financial wellbeing, implementing dedicated schemes, and offering financial education and support.

These small changes will save your employees money, but they can also have a direct positive impact on employee engagement and wellbeing. We know that if employees feel valued, appreciated, and cared for, they’re more likely to be engaged with their job and therefore stay, having a knock-on effect on retention.

How Paydata can help you better support your employees 

At Paydata, we specialise in helping businesses to better support their employees. We can provide financial advice about pay reviews, as well as HR support and guidance on implementing reward strategies to drive employee satisfaction and retention.

If you’re wondering how you can practically help your employees with the cost of living increase, get in touch with our expert team.

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