Rising Costs and Raises: How Employers can Deal with the Changing Economic Climate

As the rate of inflation continues to rise, both businesses and individuals will feel the adverse effects of rising costs.  This may lead to pressure on employees to search for alternative employment with greater remuneration. Furthermore, it could lead to employees asking their employer for an increase in their salary. It is important for employers to deal with such requests appropriately to encourage greater staff retention rates. This can be addressed by having a system in place to deal with salary increases and to consider offering non-financial incentives to demonstrate that your business prioritises staff wellbeing and satisfaction.

Reviewing Contracts, Policies and Handbooks

Employers should ensure that their contracts of employment and policies are clear in relation to salary reviews. These documents should detail when reviews are carried out to offer employees clarity on when they could expect to put forward a case for an increase. However, it is imperative to ensure that you, as the employer, maintain total discretion over whether any salary increase is awarded. The contractual clause should be clear that even if a salary uplift is awarded habitually, that the employer retains the right not to award an uplift even if this has been offered routinely in the past. Contracts of employment, policies and handbooks should be reviewed regularly in order to ensure legal compliance and reflect best practice. Employers should apply any policies in respect of salary reviews and uplifts fairly and consistently in order to avoid any allegations of unlawful discrimination. More regular salary reviews may be helpful in order to allow your business to offer more incremental salary uplifts to ensure alignment with the current market.

Alternative Financial Incentives

Other financial incentives that you can offer employees include bonus schemes which can incentivise staff to work harder in order to reach targets or goals. Another recent trend that we have seen is employers offering their employees equity shares in the business. This can encourage employee owners to take greater pride in their work and has the potential for both businesses and employees to benefit from tax advantages. Finally, we have also seen employers offering their staff One-Off “Cost of Living” Payments in order to deal with rapidly rising rate of inflation. Some non-financial incentives that employers could consider in order to attract and retain staff are as follows:

1)         Hybrid Working and Flexible Working Policies;

2)         Salary Sacrifice Schemes;

3)         Employee Wellbeing Initiatives;

4)         Four Day Working Weeks; and

5)         Offering Training and Further Development Programmes.

If you require any assistance developing your business’ contracts of employment and policies, or require any further advice in respect of how to deal with salary uplift requests or non-financial employee incentives, please do not hesitate to contact a member of our Employment team.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.