With inflation at a 40-year high, businesses are seeing inflation erode their purchasing power, adding to the higher prices already created by supply shortages. Companies are also experiencing inflation’s effects on wages and benefits, which affects their ability to compete and negotiate with existing and potential employees.
With the “great resignation,” businesses were already having difficulty attracting and retaining top talent. Many increased their wages to remain competitive. Still, even though wages are rising, inflation makes them worth less. And employees are starting to ask for more frequent adjustments to their wages. Evaluating your job market vulnerability is vital to determining how much your workforce is affected by inflation. Employco can help you assess the effect of inflation on your business and your employees and make recommendations for how best to manage inflation’s effects.
Evaluate your wages
We’re seeing many businesses starting to do more frequent pay reviews. In the past, they were doing pay reviews once a year. We’re seeing companies doing pay reviews two or more times throughout the year to ensure that pay for the various positions stays competitive. In many cases, inflation is making those increases less competitive. An annual 3-4% cost of living raise was enough in the past. With prices up 7.9% to 8.4%, that annual raise is not enough to counteract the effect of inflation on prices and the overall cost of living.
Strategies to cover increased costs
When faced with increased costs due to inflation and employees’ desire for higher wages, businesses need to find a way to make up the difference to stay competitive. That can lead to hard choices about whether to pass the additional costs to their customers in the form of higher prices or to their employees in the form of diminished benefits and higher deductibles. For now, the trend appears to be that businesses are not making significant changes to their benefits packages.
Other strategies that businesses can take to manage the effects of inflation on their costs include evaluating internal processes and identifying areas where they can cut costs internally. Streamlining processes and procedures can help an organization run more cost-effectively, freeing up revenue to cover wage increases. Another option is to investigate different compensation offerings, such as health and wellness or financial products, that help your compensation package remain competitive but with minimal cost increases.
Outsourcing your HR or other activities to become part of a larger purchasing and negotiating group is another strategy to help a business remain competitive during periods of high inflation.
Contact us to learn more about how Employco can help you achieve greater control over employee costs and streamline your internal operations.