How employers can support their employees during a cost-of-living crisis

26 April 2023
The Covid pandemic, geopolitical upheaval, trade wars and other factors have sparked rising costs worldwide. The International Monetary Fund reported a global inflation rate of 8.8 percent in 2022 — more than double the pre-pandemic average — and forecast a substantial 6.6 percent rise in 2023.

In this challenging economic environment, many multinational employers are looking for ways to help employees meet their financial obligations while promoting their emotional wellbeing. This article provides a summary of steps employers can take to support their employees financially and emotionally during the ongoing global cost-of-living crisis.

Increase salaries

The most common response from private sector employers looking to support their employees during periods of rising inflation is to increase wages. A recent global total rewards survey suggests that many companies are planning 2023 pay increases of between 4 and 5 percent, which is higher than usual.

That said, predicted average increases are dependent on location and other factors. To provide some examples, Brazil-based employees should except an average increase of more than 8 percent this year, while that number is 5 percent in the UK, 4.4 percent in the US and only 2.7 percent in Japan.

Many factors contribute to these discrepancies, including the fact that each country has its own inflation rate. According to the IMF, for example, Brazil’s current (2023) inflation rate is 5 percent, the UK’s 6.8, the US’s 4.5 and Japan’s 2.7. These numbers are more or less in line with the expected average salary increases for those respective countries in 2023.

To provide appropriate salary increases, multinational employers should consider these country-specific factors when developing compensation strategies.

Provide bonuses

Some employers opt to give their employees one-time bonuses to help offset increasing costs, either in addition to or in lieu of salary increases. Some governments have recently incentivised companies to provide bonuses to ease the effects of rising inflation. Germany’s parliament, for example, approved legislation to allow companies to pay employees a temporary, tax-free inflation bonus of up to €3,000 per annum.

It's worth adding that in many countries, bonuses are subject to tax and may be subject to different withholding rates than standard compensation. In the US, for example, bonuses are typically subject to a 22 percent tax withholding rate, which may be higher than normal for a given employee. This may offset some of the short-term financial benefits of bonuses to the employee and should be factored in when considering providing employee bonuses.

Conduct a benefits-package audit

Many multinational employers have benefits packages that were developed years ago and don’t account for current economic realities, including cost-of-living increases and any changes to expected or commonly provided benefits by region and industry.

A benefits package audit can uncover these mismatches and in some cases opportunities to save money, for example by changing to more efficient insurance plans. Improving a benefits package can be a cost-effective way for a company to provide employee financial relief. Improvements may include increasing pension contributions and providing discount voucher schemes, employee assistance programs, healthcare cash plans, private medical insurance, share schemes and more.

The audit process should also include a review of related communications policies and practices. The audit is not only a means to update a company’s benefits package, but also to ensure that employees understand their benefits and can easily take advantage of them.

Promote employee financial literacy and wellbeing

Employers can play an essential role in helping develop their employees’ financial literacy, which can in turn improve their financial wellbeing and help their income go further. Providing easily accessible, localised information can make a big difference to employees while also being cost-efficient for the company.

Options include providing financial information in employee onboarding trainings — including explaining how to take advantage of any pension benefits available and the importance of investing over a long period to maximise compound-interest advantages — and regular webinars with internal or third-party financial experts. An employer may also provide trainings or written materials about budgeting, investing, paying down debt and other related subjects.

According to a global financial wellbeing report, employee financial empowerment through financial education provided by employers can improve employee engagement, retention and a company’s bottom line.

Provide manager training and offer flexibility

Employers should consider providing manager training to help support employees through a cost-of-living crisis. This may include providing information to managers on specific employee stressors such as job-insecurity fears and an inability to meet financial obligations. Training may also emphasise active listening, the importance of scheduling regular one-on-one meetings that might uncover finance-related anxieties, and available flexible-work options that might alleviate work-life balance challenges.

Managers should also understand mental health resources available to employees and when to contact HR with concerns about an employee’s wellbeing.

Ensure ongoing communication

As mentioned, a benefits audit should include an examination of company policies and practices around employee total reward packages. These include employee salary, additional benefits and any available employee support.

An employer should begin by clearly explaining the details of its total rewards package during the employee onboarding process, and it should continue providing updates throughout the employee lifecycle. The employer should provide updates and information about compensation and benefits at regular staff meetings, in internal emails and videos, and in company policies.

This kind of clear, ongoing communication helps establish trust during periods of rising inflation and promotes conversations between employees and leadership. Clear and open communication can also help reduce any stigma attached to openly addressing financial anxieties.

Alongside promoting employee financial literacy and wellbeing, implementing robust communications policies and practices is a practical, cost-efficient way for an employer to support employees during periods of rising inflation.

It’s important to acknowledge that organisations themselves must contend with inflationary pressures. When facing these headwinds, an organisation must try to strike a balance between addressing the needs of its employees and ensuring the financial wellbeing of the company.

Kathryn Hendy-Ford, senior manager, HR advisory, and Rhiannon Lammie, HR business partner, contributed to this article.