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Friday, 11 March 2022 15:29

Meeting Employee Pay Expectations

The economic sanctions imposed by Western countries upon Russia in response to the country’s invasion of Ukraine are obviously designed to create financial discomfort for President Putin and his followers. One of the side effects of these sanctions being felt across Europe and the UK however is the dramatic increase on Petrol and diesel prices at the pumps.

With substantial, domestic gas price rises imminent, and a risk of wider ranging price increases of other commodities, including basic foods, a squeeze on living standards is highly likely. So, what can and should employers do in these circumstances to support their employees and what are their obligations?

Motor fuel prices are particularly volatile as we all know and price fluctuations in the raw product can affect the prices that we pay at the pumps almost overnight. The immediate effect this will have on employees is of course the increased cost of commuting for those who use their own transport. However, as all consumer goods require transportation at some stage, we are likely to see a knock-on effect and a rise in most prices, including food staples.

We are also all very conscious of the major rise in domestic gas prices we are about to experience as the price cap is raised. European gas demand might come under further pressure if Russia restricts supply. And if that’s not enough doom and gloom, let’s not forget the increase in National Insurance contributions that we’ll all be making to cover the cost of the pandemic.

We should all expect a lot less change from our April paycheques.

Annual pay increases to help employees meet the added costs of inflation are part of the economic culture in the UK. Low inflation and record low interest rates have enabled employers to justify more modest pay increases in recent years. Certainly in the public sector, where pay increases are made visible, rises have been kept low, and even then, only made to certain groups such as nurses.

In the perfect storm of inflation that we now seem to be on the brink of, we might expect employees to look to their employers for more support and perhaps an extra-generous pay-rise to help ease some of the financial pressure. There have already been some reported cases of employers going above and beyond expectations and providing very generous pay awards to their staff, specifically to help with the imminent gas price increases. https://www.bbc.co.uk/news/business-60569979

However, it’s not the job of the employer to maintain employees in the lifestyle to which they have been accustomed. Whenever pay increases are reviewed, business affordability must be the main consideration, taking into account the general economic environment and market pay positioning.

For the majority of business, substantial pay increases will simply be too much to bear. Staff cost are already the main outlay for most and we should remember that price increases affect businesses too.

Allowing staff to work from home to save the petrol costs of commuting could be an option, and HMRC do offer a home working allowance, but this needs to be weighed up against the cost of heating that home when the new fuel prices kick in. Organising car shares or providing company bicycles might make coming into a workplace that’s heated anyway more financially viable. At least until the weather improves and starts to feel a little warmer.

One-off bonuses and ex-gratia payments are also options. Advantages for the employer here are that there are no long-term commitments and payments are not pensionable. We would however advise that any such payments are made consistently across all employees.

Where feasible, employers can enable workers to earn more money through overtime or covering for vacant positions. The employer is still getting the productivity and potentially without some of the recruitment and training costs.

Although failure to meet employee pay-rise expectations might lead to some staff attrition, the lure of more pay from a new employer might be surpassed by job security. With no early resolution to the war in sight, a protracted crisis in Ukraine looks increasingly likely. Stable business that financially prepared for difficult times will likely fair better in the long term than those who are prepared to offer pay increases above their means simply to appease their staff. A fair and honest approach to the explanation behind what pay increases are awarded is probably the best policy.

For help and support with a workforce and people plan review that might help you set realistic pay awards, contact us on 01452 331313 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.

There are still places on out forthcoming Workforce Planning Seminar too on Tuesday 29th March.

 

Read 382 times Last modified on Friday, 11 March 2022 15:43

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