When inflation is low, employers usually don’t have to worry about making cost-of-living adjustments (COLAs) to employees’ salaries. However, with the inflation of the last few years, COLAs have driven payroll changes and are still a prudent thing for employers to do.
Wages and the Cost of Living
Workers are continuing to catch up after more than two years of high inflation that took a chunk out of their paychecks. While prices for energy and gasoline are down year over year, the cost of food, housing and some consumer goods has continued to increase.
“Cost of living raises are incredibly important to the majority of the workforce who may already be underpaid and whose wages have not kept up with inflation,” ResumeBuilder.com’s Stacie Haller recently told USA Today. “Although the inflation rate has slowed down to 3.6%, any increase that is less than 4% is not an increase to one’s earning power and wages.”
COLAs Affect Employers Too
Employers must also contend with higher prices that affect how they conduct business. In addition to rising costs on raw materials and employee wages, benefits like health insurance are also more expensive. Economists have noted that higher wages and benefits will likely put pressure on corporate profits, and some companies may lose pricing power.
Nonetheless, an annual COLA should be on the table for employers to offer their employees separately from merit increases.
It’s a good idea to remind employees of the ways that employer-sponsored benefits help improve their financial picture. Beyond salary, employees should grasp the value that company benefits bring to their total compensation. By some estimates, an employer’s coverage of health care premiums can add up to $5,000 to $20,000 each year per person, and employer contributions to retirement plans can total 3% to 10% of a worker’s salary.
In our experience, the most valued components of a benefits program address aspects of an employee’s quality of life such as health care, leave and flexibility. Well packaged benefits in addition to a COLA should go a long way in the area of employee retention.