The Effect of Inflation on Your Employees


Inflation affects us all in various ways, including higher prices at the gas pump and increased prices on everything from rent to groceries and utilities. One of the critical effects of inflation that significantly impacts businesses is how it affects your employees’ bottom line. Inflation has a direct effect on everyone’s purchasing power, and that has a direct impact on the value of your employees’ compensation packages. 

Current wages have less value
Inflation has a direct impact on the value of your compensation packages. Inflation lowers the value of a raise or compensation package. With prices up 7.9% to 8.4%, the typical annual raise of 3%-4% is not enough to counteract the effect of inflation on the overall cost of living. It means that your compensation has less value and can leave your employees in the negative financially because their current wage may not be enough to cover their expenses.

Retaining talent is a challenge
With your compensation value translating to less during a period of inflation and increased cost of living, it can also diminish your ability to attract and retain talent. Your employees may be looking for a new job with higher compensation. They may be asking for more frequent wage increases or a higher increase overall than in times with little to no inflation. To be competitive in the job market, businesses will need to look at other options, including more competitive wages or other desirable benefits that have lower costs, such as flexible scheduling or the ability to work remotely.  

Your compensation package is more critical than ever
With the diminished value of wages during a period of inflation, your overall compensation package becomes even more critical. Maintaining your other benefits, such as health insurance and retirement savings, can be a good strategy during periods of diminished wage value for your employees, allowing them to enjoy the same benefits even if their wage is worth less. Adding additional voluntary benefits, such as health and wellness or financial packages, to the compensation package you offer can be another way to increase the overall value of your compensation package without incurring many additional costs.  

Inflation requires businesses to spend more on wages, offer better benefits, or change the way they work. If they don’t, employees may start looking for a better offer elsewhere. Outsourcing your HR or other activities to become part of a larger purchasing and negotiating group is a good strategy for remaining competitive during periods of high inflation. Contact us to learn more about how Employco can help you achieve greater control over employee costs, streamline your internal operations, and remain competitive.