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How to Support Employees Through High Inflation

Living isn’t cheap. And what constitutes a living wage skyrockets as prices rise. While inflation isn’t new, it can be tough to anticipate it and adapt. In fact, 44% of full-time employees said inflation has had a major or severe impact on their financial situation over the past year, according to PricewaterhouseCoopers (PwC).

The same survey reveals an overwhelming 59% of workers don’t believe their pay keeps up with rising cost-of-living expenses. Even if it doesn’t force an individual to find new work, inflation makes it hard to live comfortably. Among the employees surveyed by PwC:

  • 49% struggle to meet monthly household expenses
  • 44% regularly miss minimum payments
  • 28% always run out of funds between paychecks

Inflation can make the future look bleak. It’s like having the rug pulled out from under one’s financial security. Plus, no one person or entity can control what causes it.

But just because we can’t halt inflation doesn’t mean employers can’t meaningfully support their employees through it. Let’s explore the roots of inflation, how it directly affects employees and what businesses can do to limit its impact.

What is inflation?

Inflation occurs as the prices for goods and services rise. Think of it as an imbalance: As costs spike, purchasing power falls. Inflation isn’t instant, either. That’s why it measures how expensive certain goods or services have become over time — usually one year. From 2021 to 2022, CNBC reported the cost of:

  • school meals surged 305.2%
  • eggs spiked 59.9%
  • gasoline jumped 32.3%
  • air travel rose 28.5%

Inflation makes necessities and other expenses that were once affordable harder (if not impossible) to swing under the same salary. It compels us to make compromises, manage our spending more critically and limit our quality of life.

And inflation impacts businesses, too. Consumers redirecting funds or buying fewer products cut deep into retail sales. At the same time, employees whose wages don’t go as far as they used to won’t be thrilled to effectively work for less despite consistent pay.

Inflation makes engagement and competitive compensation a moving target.

What are the types of inflation?

In most cases, inflation can be categorized as:

  1. demand-pull
  2. cost-push
  3. built-in

Let’s explore what causes each and how they differ.

1. Demand-pull inflation

This happens when the demand for goods or services exceeds production or availability. For instance, the Bureau of Labor Statistics found increased global demand, limited supplies and the abrupt end of a trade agreement recently spiked worldwide grain prices. The difference in our national grain consumption and its availability created demand-pull inflation.

2. Cost-push inflation (short-term inflation)

This kind of inflation occurs when production costs rise. This can be caused by:

  • labor shortages
  • few raw materials
  • limited machinery or factories

As the cost to make or offer something increases, it pushes higher prices onto the public.

3. Built-in inflation (long-term inflation)

We’ve looked at direct forms of inflation, but what about the impression it leaves? That’s the idea behind built-in inflation. It’s like a preemptive defense mechanism: People who have experienced inflation expect it to happen again at a similar rate. As a result, employees may expect a regular cost-of-living raise (even in the absence of significant inflation).

How does inflation affect the U.S.?

To understand how inflation affects the U.S., we need to step back and look at the bigger picture.

In August 2022, global inflation rates surged to 7.5%, up from the prior decade’s 2.1%. Supply chain disruptions were the first culprit, but they weren’t what sustained inflation into 2023. In fact, labor costs rose by 6.7%. This marked the sharpest spike in services since 1982.

Unlike goods, however, broadening inflation in the service sector makes it harder for the Federal Reserve to bring inflation down to its target rate of 2%.

Why did labor costs take such a huge leap? The whiplash of unemployment rates following COVID-19 played a part. Unemployment declined from 7% to 3.7% between October 2020 and September 2022. The price of goods also surged by 12.3% from February 2021 to February 2022. But even as those prices decreased throughout the year, labor costs continued to rise.

This perfect storm of fluctuating prices makes it difficult to project when inflation will stabilize. Meanwhile, it leaves consumers to foot an increasing tab.

How does inflation affect employees?

The power of a consistent paycheck wanes as inflation rises. Higher inflation challenges employees to make do with less purchasing power. They could have:

  • trouble maintaining their standard of living
  • lower savings
  • increased bills
  • more taxes
  • higher stress from multiple jobs
  • poor to nonexistent work-life balance
  • fewer opportunities to invest or buy assets

Even with regular merit increases, significant inflation makes us feel underpaid even if we’ve technically made more each year.

How do different inflation types influence employees’ demands?

Yes, employees will probably expect higher compensation when inflation strikes. But the different forms of it alter their expectations.

With cost-push inflation, prices should revert to normal when the cost of production and associated materials settle. Similarly, employees may expect short-term incentives to offset their financial discomfort, such as:

  • inflation adjustment bonuses
  • increased commission and rewards
  • overtime pay
  • profit-sharing plans

In addition to monetary perks, relief could also come in the form of:

  • flexible working hours
  • additional PTO
  • company-provided meals and day care

Addressing built-in inflation, on the other hand, requires a gradual approach. Employees anticipating this will expect long-term incentives, like:

  • gratuities
  • equity and retirement plans
  • performance shares
  • regular reimbursements for fuel and travel

Other programs that can assist talent for the long haul include:

  • on-site gyms and gym memberships
  • company-owned vehicles
  • mental health resources
  • employee resource groups

How can businesses support employees through high inflation?

Businesses must make accurate and proactive choices to keep and satisfy employees during rising inflation. But employers need to understand how inflation impacts them, too. Higher material and production costs can push organizations to close or lay off staff to make the most of the companies’ dwindling resources.

Even as the economy rebounds, candidates — especially those laid off in a downturn — will expect a prospective employer to have a strategy around inflation. Businesses that don’t anticipate this and address it gamble with retention and could dissuade potential employees from applying outright.

Keep these nine strategies in mind as your company considers how to keep people through high inflation.

1. Increased wages

When salaries become stagnant and purchasing power tanks, employers should consider categorical raises. Even if they’re not enough to completely offset inflation, it shows employees your company recognizes the issue and will take action to address it.

2. One-time inflation bonuses

If permanent raises aren’t feasible, one-time bonuses still help employees absorb an initial shock. In fact, this may be all that’s necessary to offset temporary cost-push inflation. Consider the inflation rate to determine the most appropriate and cost-effective bonus. For example, if inflation is projected to spike by 5% for two months, you may consider a bonus worth 5% of an employee’s annual salary.

3. More PTO

In the absence of more pay, more time off can help employees maintain their work-life balance and contribute to their financial health. The exact amount of time off might not be clear, so invest in a tool to easily gather feedback and assess your workforce’s needs.

4. Limited employee health care contributions

While employees take on more expenses outside work, even a temporary hold on their health care contributions can help them reach some kind of normalcy. If your company knows of an upcoming increase in insurance costs, consider covering that spike as your people adjust their budgets. Remember, inflation hits employees at different angles. Even relieving just one of those pain points can help you keep their trust.

5. Short-term incentives and bonuses

Consider this your fallback if you can’t implement raises or one-time bonuses. Performance-based incentives for sales, intake or another business-driving metric can motivate employees and help your organization grow despite high inflation.

6. Emergency savings accounts

Almost 1 in 4 U.S. consumers don’t have savings set aside for emergencies, according to the Consumer Financial Protection Bureau. Emergency savings accounts (ESAs) help employees prepare for financial difficulty. Like health savings accounts, ESA contributions can be automatically deducted from an employee’s check, making it one step simpler to save. Employers can also offer matching or proportional contributions to give their people extra incentive to invest.

7. Expense reimbursement

Higher prices for everyday expenses amplify employees’ stress. Consider offering free or discounted meals at work, or reimbursements for:

  • fuel
  • automotive maintenance
  • minor medical expenses
  • child care
  • and more

Be sure to factor in the tax implication of reimbursements like these. Consult a CPA to determine which expenses count as taxable income.

8. Discounted memberships

Inflation hits everyone. Partnering with neighboring businesses to offer employee discounts can give people a break while supporting the community. Even small discounts can make living through inflation easier.

9. Daily pay cycles

Sometimes it’s less about how much employees get paid, but when. Paying your people daily helps them overcome the stress of bills and other urgent payment due dates. Even if this wasn’t an issue before, high inflation can make a comfortable payment schedule fail.

How does Paycom help businesses and their employees cope with inflation?

More flexibility and compensation can help address inflation, but you need a cost-effective way to deliver them. Paycom’s single software simplifies:

  • implementing cost-of-living adjustments
  • informing employees about available benefits
  • managing data by eliminating manual entry

Plus, Beti®, our employee-guided payroll experience, leads employees to engage with and verify the accuracy of their check. If Beti identifies any errors, it leads workers to resolve them before payroll runs.

And when your people work hard for their pay, make their pay work hard for them with Everyday™. It lets employees get paid daily* through the Vault Visa® Payroll Card. While you give employees an in-demand benefit, they enjoy greater financial wellness and the freedom to meet challenges like inflation.

Explore Paycom to learn how it helps businesses and their employees tackle inflation and other complex issues.


*Please see Terms of Use. Employees generally receive their net pay within 24 hours of working, but some employees may receive their pay sooner. Some limitations may apply based on employer’s pay cycle, employee’s pay amount, timing of approvals or certain employer configurations. Employees start receiving net pay after they have earned enough money to cover their required deductions, taxes and benefits each pay period.

The Vault Visa® Payroll Card is issued by The Bancorp Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and can be used everywhere Visa debit cards are accepted.

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DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.