Tools for Riding Out the Inflation Storm

08.24.2022
HR & Safety

The following was first published in Berchem Moses PC’s Connecticut Labor & Employment Law Journal. It is reposted here with permission.


There are signs that inflation is beginning to loosen its grip on the American wallet, but costs remain a major concern for the public.  

Gas prices have started to decrease, but groceries, medical care, and rent have continued to become more expensive. 

What can employers do to address the situation for their employees while preserving their own economic stability?

Wages 

In response to concerns regarding inflation, particularly in a union setting, it is helpful to remind employees that inflation is temporary, while wage increases are permanent.  

It was not long ago (2010) when inflation was negative and remained flat, until COVID hit.

Nevertheless, even employees who love their jobs may feel the need to look elsewhere if they cannot pay the bills.  

Employees at all levels of the wage spectrum may face these challenges and employers should anticipate that it is not only the lowest-paid employees on the payroll who may have difficulty making ends meet. 

It is not only the lowest-paid employees on the payroll who may have difficulty making ends meet.

It is important to understand that certain costs fluctuate regularly (e.g. gas and groceries) while other costs are “sticky” (e.g. rent).  

An individual employee’s wages are generally sticky, meaning once it goes up, it is very difficult to bring it down. 

While it is legal to decrease wages with appropriate notice, doing so creates significant morale issues and is seldom done except in the cases of a demotion or reduction in hours.  

Therefore, when an employer gives a raise, it is generally viewed as permanent.

Bonus Plans

Employers who wish to help their employees grapple with inflation without committing to a perpetual wage increase should consider the possibility of a one-time bonus.  

The bonus would represent the employer’s recognition that economic times are difficult and it wants to ease the burden on employees, but would not implicitly commit the employer to maintaining that compensation going forward.  

In this way, the inflation adjustment would function like a holiday bonus rather than a salary increase.

The most effective use of an inflation adjustment would be in addition to a holiday bonus.

The most effective use of an inflation adjustment would be in addition to a holiday bonus for employers who typically provide one. 

If an employer cannot afford to do both, it may choose to treat the payment as an early holiday bonus, providing relief now rather than waiting until December out of tradition.

Like a holiday bonus, employers should ensure that the bonus is purely discretionary – not promising the bonus as an incentive for meeting goals.  

Issuing non-discretionary bonuses may lead to unintended consequences for non-exempt employees who work overtime.

Additional Options

Of course, employers who are able to commit to longer-term increases may choose to do so.  

While it is obviously better for the employee, employers stand to benefit as well.  

Employers who pay at or below market rates may find themselves rewarded with greater loyalty (i.e. reduced turnover) if they make permanent wage increases.  

With the demand for workers in certain industries at particularly high levels, realignment of the company pay scale may be necessary to recruit new talent and retain existing talent.

Health benefits and retirement benefits are also tools to provide increased financial security to employees.  

Health and retirement benefits are also tools to provide increased financial security to employees. 

Employers can consider increasing these benefit offerings or reminding employees of benefit availability, while ensuring the message is well-received.  

Reminding a 30-year-old employee who cannot afford groceries for her family that the company has a great retirement plan to which she could be contributing will likely be viewed as out of touch.  

However, finding ways to reduce health insurance premium costs would provide relevant, immediate relief.

There is no question that inflation has made it more difficult for employers and employees alike to meet their financial goals.  


About the author: Floyd Dugas is a senior partner with Berchem Moses PC, leading the firm’s municipal labor and employment practice. He and other labor and employment attorneys at Berchem Moses PC are experienced in advising employers about employee compensation. 

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