Inflation, as measured by the Consumer Prices Index (CPI), hit 9.4% in the year to June – the highest level for 40 years, in the face of soaring food, fuel and energy prices during the cost-of-living crisis. Strong demand for goods, energy prices and higher costs for businesses are reflected in higher prices.
The review of the energy price cap (the maximum energy companies can charge) which took place in April resulted in bills being increased by 54% with a typical UK household now paying around £1,971 a year for their energy bills (compared to the previous cap of £1,277) a record increase caused by regulator Ofgem increasing the price cap. The monthly rise in both gas and electricity prices in April were by far the largest recorded since 1988, and they are expected to rise again this October.
Cost predictions for the next cap level, from 1 October, are worsening as the date draws nearer. On 8 July, energy analyst Cornwall Insight amended its prediction of what Ofgem’s energy price cap will rise to this autumn, to £3,244. The number is considerably higher than the £2,980 it recommended only last month. The firm says the price cap could rise to £3,363 in January 2023, when the frequency of reviews will shift to every three months to allow greater responsiveness to movements in wholesale energy prices.
The combined effect of the cost-of-living rise, increasing interest rates and rising inflation means that many people are feeling the financial squeeze, but employers are unlikely to be able to increase wages in line with price inflation.
So, what can employers do to help employees with the cost-of-living crisis?
Acorn HR Services have included some areas of consideration below when looking at how you can help employees with the cost-of-living crisis:
Reviewing Financial Wellbeing Policies and Offering External Support.
Increase and promote any financial support available to staff
Make sure employees are aware of what help they can get help.
Introduce general financial education programmes - giving employees the opportunity to learn generally about budgeting, money saving tips, saving, debt management, and retirement planning etc.
These can either be online or for larger organisations employers could arrange for a financial adviser to run group sessions.
Signpost organisations which offer free, impartial support, for example Citizens Advice
Rewards & Benefits
Review your reward strategy – some employers are offering cost of living bonus (bearing in mind that it may not help those that claim Universal Credit or Tax Credit as these will be affected).
Communicate your benefits so that staff are aware of what benefits are available to them.
Consider employee discount schemes or providing vouchers for example, towards weekly shopping bills.
Other ways that employers can help is by offering flexibility when working from home to help employees save money on commuting or petrol costs.
Salary sacrifice schemes
Salary sacrifice schemes can be useful as these can reduce the amount of tax being paid (it can be used for company cars, bikes, bus passes, health and dental care etc) but it will lower employees’ take-home pay. National insurance contributions will also be affected.
Getting payroll right - with personal finances being one of the main causes of stress for employees, the timing and accuracy of payroll processing plays an important role in the financial and mental wellbeing of employees.
Consider increasing frequency of salary payments – some employers are helping employees struggling to make it to pay day by looking at ways to pay their employees the wages they have already earned before payday and others offering to pay in advance. This can be helpful in an emergency but be careful as it can worsen their financial status.
With inflation soaring, some UK employers are generously topping up pay with one-off payments. However, for some low-wage employees, this could have some unintended consequences as it can affect benefits payments for example, in receipt of Universal Credit or Tax Credits being claimed.
Boosting people’s incomes is perhaps the most obvious way in which employers can support financial wellbeing and will likely have the most rapid impact. But don’t forget that employers’ role in protecting people from poverty or financial distress is not just about what you pay people.
Talk to your people, for example via anonymous surveys to understand what kind of support they would find most helpful. You could then consider a range of options you can offer to all employees and direct them to the information they will need to make an informed decision as to what is best for them.
Taking steps to look after the financial wellbeing of employees will help strengthen their financial resilience to help with both the current cost of living crisis and should help to safeguard them for the future also.
It is important to note that businesses are also facing price hikes and that it is crucial that a balance is struck between both the needs of the employer and the employee.