Inflation has hit a 40-year high, with the consumer price index soaring 9.1% year-over-year in June, the Bureau of Labor Statistics reported Wednesday. The numbers rose even higher than analysts expected—a stark reminder that a reprieve is far off.
Workers are continually feeling the effects as steep costs for food, housing and gas eat away at take-home pay—information that is spurring employers to rethink several workplace strategies, from return-to-office mandates to benefits tactics.
Employers that do not take a competitive approach to combat inflation in a hot labor market “will find themselves at a significant strategic and operational disadvantage if demand continues as anticipated—especially as other employers offer higher base pay salaries,” says Tony Guadagni, senior principal in the Gartner HR practice.
So how is soaring inflation impacting employers? Here are five areas where employers are feeling the impact and evaluating their strategies.
Employee benefits. Inflation is having a direct result on benefits strategies, experts say, with several employers considering specific offerings that might alleviate the pain for workers.
Benefits like tuition and student loan repayment benefits, fertility benefits or health savings account matches can directly help an employee’s pocketbook. Still, some experts warn that not enough employers are adjusting their benefits packages in real-time to help employees fast enough.
Healthcare costs. Inflation also is causing some organizations to reexamine their employee healthcare cost strategies, even spurring some employers to hold off on increasing employees’ share of their premiums to help workers as medical costs increase.
Meanwhile, as annual health savings account contribution limits for 2023 jumped in one of the biggest annual increases ever due to inflation, many organizations with high-deductible health plans are promoting HSAs as a way employees can save for medical expenses, now and in the future.
Remote work. Employers have increasingly thought about bringing workers back into offices after more than two years of embracing remote work due to COVID-19 concerns. But, among other reasons, soaring inflation is giving some employers pause to force employees back into offices.
Offering remote work, hybrid schedules or flexibility can help combat the rising cost of living, as it can allow employees to be in more control of their finances, commutes and living situations. Importantly, employees who work remotely decrease commuting to help save on gas or other transportation expenses, and they can more easily prepare food and eat at home and avoid regular (and often pricey) lunches or coffee breaks with colleagues.
Retirement. Soaring inflation is causing employee uncertainties regarding how they approach their retirement savings. Data from Voya Financial, for instance, found that 66% of employees say they are worried about how inflation will affect their ability to save for retirement, a number even higher for younger workers. Generally speaking, when the cost of living increases significantly, employees become more likely to decrease or drop retirement contributions, says John Lowell, an Atlanta-based partner with October Three Consulting, a retirement plan advisory firm.
“Pay increases, at least in the short run of this inflationary environment, are not keeping up with inflation. They’re not coming close,” he says. “That means, assuming that they can meet their basic needs, people have less discretionary spending power. Employees are cutting back somewhere, and it’s probably not on the basics of life, like their groceries or mortgage.”
Usually, savings, retirement investments or health savings account funding tend to be low-hanging fruit for cutbacks. That uncertainty and concern is spurring smart employers to focus attention on retirement strategies and increase their support for employees’ post-work savings strategies through communication, education and continuing with financial resources and benefits. Employers are reminding employees of the merits of continuing to invest in their 401(k)s, even during economic downturns, while other employers are increasing 401(k) contributions to help cushion concerns for employees.
Salary and compensation. An obvious strategy that’s being looked at in light of soaring inflation? Salary changes. Sixty-three percent of executives plan to make compensation adjustments in response to high inflation, according to data released by Gartner, which surveyed 157 executives in March to understand how they are addressing inflation concerns.
“The No. 1 thing that employers focus on is compensation when it comes to retention,” Guadagni tells HRE. “It’s not the only thing. But it’s the biggest thing. And if you have the opportunity, if you’re capable of raising wages, you’re going to do better in terms of retaining your employees than organizations that don’t.”
Meanwhile, some employers are handing out bonuses and other lump payments to help improve employees’ finances.
Read more about inflation-driven salary hikes here.