(by Esther Kamau)
Caring about inflation more than your employees already? You’re almost there!
There is a strong relationship between rising inflation and your employees’ ability to afford the basic necessities. It’s possible that you may be paying your employees significantly low wages, as extreme inflation reduces their purchasing power. As an employer, understanding inflation and adjusting your payroll budget will help you retain the employees struggling in this matter.
Inflation In The United States
Low and positive inflation is a sign of a growing economy. The U.S central bank -the Federal Reserve, maintains a 2% annual inflation rate to ensure steady growth.
In the United States, the annual inflation rate increased unexpectedly to 8.6% in May 2022.
This is the highest record since December 1981. This is ascribed to supply chain disruptions and other Covid-19 related complications.
Impact Of Inflation On Businesses
Inflation affects businesses differently, depending on factors such as a business’s economic circumstance, the productivity of its workforce, the supply chain, debt levels, and the like. Some of the results of inflation that businesses may face include:
- Increase in operation cost.
Due to the increase in prices, the price for raw materials also goes up. Thus, increasing the cost to manufacture products or restock your shelves as a business. The price increase also drives up your business’s overhead.
The same goes for your inventory retention and building new inventory, but the value of old stock also rises. This is because you used ‘old’ money to acquire it. The high cost of operation may cause an increase in the prices of goods, which may squeeze out buyers.
- High-interest rates.
The U.S Federal Reserve uses interest rates as an inflation-fighting tool. The demand for goods and services are limited, leaving businesses to scrounge for working capital.
Impact Of Inflation On Employees
Your employee’s take home pay diminishes with inflation. Since employees have different needs for goods and services,the impact of inflation varies greatly for each household. Lower-income households face a more challenging time since the “trickle down” economy doesn’t actually work, in practice, and their starting point is usually at a disadvantage.
To keep up, employees must ask for increased compensation to keep pace with inflation, and are faced with opposition more often than not. The employer and employee need to work together to make these straining times bearable, or neither will survive.
While employers continue to chase talent retention, employees are seeking to afford surviving life. Too many employers are too slow to realize this.
Tips To Combat Inflation
Businesses must analyze their situation in preparation for inflation trends. Some of the measures that companies can take to lessen the gut punch of inflation include:
- Review employee compensation. You must ensure your employees get wages that match the economic climate. The Federal Reserve Bank of New York indicated that the salary expectation for job seekers went up from $53,676 in March 2020 to $60,610 in March 2021. As an employer, you should consider a manageable increase in your payroll budget.
Increasing compensation for high salaried employees with unaffected purchasing power is not usually the necessary budget priority. If you are scared of getting locked in unmanageable payroll budgets, could consider other forms of rewards, such as less frequent bonuses, or better benefits.
- Employing a Hybrid Work Model. Working from the office comes with extra costs such as commuting. A hybrid model could allow employees to work remotely to cut costs on transportation and meals.
- Covering Health Costs. You could make more of a contribution to your employees’ health benefits, specifically. This has been seen to positively impact the employees’ productivity, as they’re less consumed with worry over affording treatment for chronic or emergency health needs.
- Assistance with Student Loan Repayment. A woefully underutilized benefit, helping to pay off mounting student loan debt can be a huge relief to a great number of your employees. According to the CARES Act, employers can pay up to $5,250 annually for an employee’s student loans, and it’s tax-free. Paying your employees’ student loans increases their benefits, improving your chances of employee retention.
- Financial Coaching. Give your employees a salary and they’ll eat for the duration of their employment. Teach them to manage that salary better, and they’ll have a higher likelihood of surviving in the face of financial adversity, down the road.
Amidst economically challenging times like these, employees need more help managing their finances. Through coaching, employees can be taught how to manage their salary in a way that it may either generate more revenue for them; or help them along the route of saving.
The cost for coaching, and other programs like it, can be significantly less than increasing your payroll budget.
- Retirement Benefits. Regardless of how young the demographic of your employee base is, it’s not too late to talk retirement. Giving your employees a future they can envision and strive for, should increase your odds of retention.
- Return-to-the-Office Discounts. Are you a hard-driven employer that’s desperate for the brick and mortar?
Going back to the office means employees either have to bring their lunch or buy one. Providing lunch for your employees could be a great, and relatively easy way to incentivize returning to work at the office.
Perhaps a bonus, or other lifestyle benefits may apply as an incentive as well? You be the boss.
The length of the inflation period is unpredictable.
It is better to understand what this means for your employees, and create a viable game plan, than to wait for the inevitable before giving it more thought. Retention will have better odds, your business will have better odds, and you will feel like you had enough time to plan, rather than just act.
If you need help, give us a call!