According to the latest figures from the Office for National Statistics, UK inflation increased to 9.1% in the year to May 2022 – its highest level since 1982. This surge continues to add pressure to already stretched household finances as the country grapples with the worst cost of living crisis in years.

As the UK and the world deal with post-pandemic supply chain issues, ever-increasing energy prices and the ongoing conflict in Ukraine, it is predicted that inflation rates will reach as high as 11% within months. We published a blog in March of this year that stated "by April this year, the Bank of England has suggested that inflation could reach 7%, pushing the cost of living up further still." Since the publication of that blog, inflation in the UK has outstripped that figure.

This presents serious problems for businesses and employees alike. Salaries are not keeping up with ever-increasing inflation rates, meaning that many employees are faced with spiralling financial worries and stresses. They are being forced to adapt to having less money as bills and expenses rise. Meanwhile businesses are struggling to absorb higher costs that cannot always be passed on to customers.

Why should employers be concerned about the financial wellbeing of their staff?

Money worries can have serious negative impacts on employee productivity and engagement. One study suggests that poor employee financial wellbeing can cost employers the equivalent of up to 17% of salary costs.

According to the Financial Capability Strategy for the UK:

• 25% of workers have lost sleep over money worries;
• over half of employees say that current financial worries stop them from performing at their best; and
• 46% of employees say that financial pressure affects their relationship with their manager.

What can employers do to help support the financial wellbeing of their staff?

Increasing inflation rates affect both employees and employers. Although it is easy to suggest that employers should just raise salaries to reflect the increasing inflation rates, many employers are not in a financial position to do so and offering higher remuneration alone does not solve all financial wellbeing worries. We have previously written a blog article on raising salaries. Below we suggest other options that employers may be able to consider to help employees even if they cannot afford significant pay rises. Some of these alternatives still have a cost to the employer, but may be more affordable than raising salaries substantially.

Introduce discount schemes and vouchers for employees

Companies may be able to offer employees a benefits package that helps salaries to go a little further every month. Examples of these include:

• employee rewards and perks;
• access to special discounts;
• health insurance; and
• budgets for expenses, including for childcare, transport, workplace lunches and gym membership.

These schemes and vouchers may cost employers some money, but the benefit to employees is usually greater than paying the cost as additional salary.

Offer private meetings and sessions on money management

These can include advice on budgeting and saving, debt counselling and debt consolidation. There is no expectation that employers will have anyone within the company who is able to give this advice but it may be possible to arrange sessions with external third sector advisers. However, employers do need to be careful if considering introducing commercial financial advisers to their employees – appropriate due diligence is required and any arrangements between the adviser and the employer should be made very transparent.

Provide training to senior staff so that they can support their colleagues

If a group of senior staff are given the tools and knowledge about financial wellbeing, they will be better placed to discuss and help employees with financial concerns.

Salary sacrifice schemes

These schemes are tax-friendly incentive schemes that enable employees to save money when building their pension or buying products such as laptops and mobile phones in exchange for a reduction in their salary each month. Employees do have to accept that they will be paid less each month but it may help them manage their expenses if the money is going towards buying something they intended to purchase anyway.

The cycle to work scheme is another example of a scheme to which employers can sign up. It helps reduce the cost of employees buying a bike, especially when bike prices are increasing and supply is restricted.

Conclusion

As inflation rates continue to soar, employers and employees are both struggling and in many cases there is no way to maintain revenue and incomes. The suggestions considered here will not solve this problem but may help reduce the difficulties just a little.