As inflation reaches a 40-year high and household bills skyrocket, employers are being warned to prepare for an influx of requests for a pay raise from employees.
While on average wages have increased by 4.7 per cent over the past year, the rising cost of living has meant that wages have in fact fallen by 3 per cent, meaning many workers are worse off.
In addition, an analysis by XpertHR has found that the median basic pay award in the three months to the end of July 2022 was 4 per cent, unchanged for the fourth consecutive rolling quarter.
And while pay awards remain at the highest recorded level since September 1992, they fall 5.4 percentage points behind the latest Consumer Price Index (CPI), which as of June 2022 stands at 9.4 per cent.
Based on these findings, XpertHR estimated that if inflation hits more than 13 per cent in the fourth quarter this year, as predicted by the Bank of England, and pay awards stagnate at 4 per cent, pay will lag a sizable nine percentage points behind inflation.
Looking specifically at public sector pay, the XpertHR analysis has found that large numbers of workers who are covered by the public sector pay review bodies have seen a considerable pay uplift, recording a median 2 per cent pay increase over the 12 months to the end of July 2022, up from 1.4 per cent in 2021.
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However, these below-inflation increases still risk triggering strike action among public sector workers, XpertHR warned.
Commenting on the findings, Sheila Attwood, XpertHR pay and benefits editor, said that for many employees already struggling with the rising cost of living, “the prospect of further inflation hikes, coupled with the energy price cap increasing from October, is likely to cause significant worry”.
Echoing this, Jenny Marsden, associate director of BrightHR, cautioned that some employers “are seeing increased unrest amongst workers, as evidenced by ongoing industrial action across many sectors calling for pay rises in line with inflation”.
While she acknowledged that everyone is feeling the pinch of the current economic landscape, including businesses, she said that “doing nothing is not an option” and employers “must recognise that this is a real issue and put measures in place to support their employees”.
Amid the financial challenges, Marsden warned that staff who are struggling with soaring household and fuel costs may look for external opportunities if their current employer cannot effectively contribute towards their income.
She said: “Clearly, the greatest benefit would be to offer staff a pay rise or bonus. However, those who do not have extensive financial resources may have to get creative to help support their employees and avoid losing key members of staff.”
For instance, Attwood proposed a range of perks for employees – including free financial planning advice or discount packages – that have the potential to make a difference, help them to manage finances more efficiently, and cut the cost of essential products and services.
In addition, Marsden suggested that offering targeted benefits like travel ticket loans or hybrid working arrangements to save on commuting costs, bringing remote workers into the office (if requested) to help save their energy bills, and providing training and development opportunities to establish a clear career pathway, could also go a long way to helping employees cope better with the cost of living crisis.