Dealing with the cost of living crisis as an employer

Not for decades have we all been under so much pressure financially. Rising energy bills, relatively high mortgage rates, food prices on the increase, and to cap it all, a tax burden that is at a 70-year peak – there is real pain being felt.

Employees are understandably desperate for more pay. But it shouldn’t be forgotten that employers are having a tough time of it all too. Which all begs the question, how can firms help staff weather the storm?

Start with pay

Charles Cotton, reward and performance adviser for the CIPD, thinks that a general review of pay and benefits will go some way in giving employees what they need rather than what was useful five years ago. He says that somehow “boosting incomes is perhaps the most obvious way in which employers can support financial wellbeing and will likely have the most immediate impact.”

Overtime is one answer. With money worries at the forefront of many people’s minds, Toyah Marshall, principal employment law advisor and solicitor at WorkNest points to a recent survey in HR Magazine and says that “overtime is the most in-demand work perk, followed by flexible working hours and company-funded retirement plans. With all three directly benefiting employees financially, it seems clear that these are the sorts of incentives employees value most in the current climate.”

Organisations may benefit by offering an employee assistance programme. This can be achieved with an employee assistance programme – one that provides financial advice as well as assistance for people experiencing stress as a result of the financial pressures.

Cotton, in this regard, says that “the current cost-of-living crisis is encouraging employers to explore how their benefits package can be used to help support employees and reduce the risk of workers falling into poverty.” He draws specific attention to those perks that help offset the cost of housing, travel, and childcare as being the most useful to those on the lowest incomes.

As to how such a review should be conducted, Cotton says that existing HR data could be utilised. In particular, he says employers could consider markers such as absence levels, disciplinary cases, requests for financial support, social media comments, the take up of staff benefits, employee productivity levels, and discussions with employee representatives.

He adds that “employers can use an existing staff survey to ask questions about employee financial wellbeing, or commission a specific questionnaire to explore this issue.” In his mind the benefit of doing this is that it could help employers discover which employees are most at risk and what support makes most sense.

Procedurally, Marshall believes that there are six steps needed to conduct a successful review. She would start by setting clear objectives to work out what the firm wants to achieve. Next, she would identify employees’ needs – how they feel about existing benefits. Her third step is to conduct an external analysis and look at what competitors offering and how they compare.

The fourth step means delving into the data to see which benefits are being utilised the most and which deliver maximum value for money.

Fifth comes communication so that, post review, employees know what’s available to them. Lastly comes the need to measure success and ROI to ensure the package remains relevant and affordable – replacing unpopular benefits with new ones.

And if change is necessary Marshall issues a warning – that “from a legal perspective, it’s important to make sure that any benefits that might be changed aren’t part of an employee’s contract of employment.” If they are, she says that there’s the need to undertake consultation with the staff to get their agreement to make these changes in advance.

Bonus payments?

There’s a lot in the news about governments in the UK offering bonus payments to public servants to both help them and stave off the threat of strike action.

One-off payments or tax-free vouchers may assist with rising bills and food prices as an alternative to fully fledged pay rises, as would subsidised meals at work or facilitating car-share arrangements.

There are risks to giving bonuses, not least of which there’s the chance that they could end up becoming contractually due and may create issues over how they should be given and to whom, along with how they should be calculated. Here Marshall explains that the key is to make bonuses completely discretionary – “If there is, or there becomes, a history or pattern of making such payments, the element of discretion may be lost.”

She adds that employees shouldn’t be given the expectation that they’ll receive a bonus or have any hand in its calculation: “This can be a complex area, so it’s best to seek advice such payments may be made more regularly, even if only annually, to ensure no obligation to pay is created.”

But for Cotton, the advantages of cost-of-living bonuses are several – they can be given without permanently increasing the wage bill; they don’t flow through into other aspects of pay, such as overtime rates or pension contributions; they can be targeted at those hardest hit by the cost-of-living crisis; and because they are paid in one go, they can be more useful in paying a large bill than being spread over 12 months like a pay rise.

However, he highlights a key disadvantage and rhetorically asks: “If inflation doesn’t fall in 2023, will employees expect their employers to make another award to make up the fall in their living standards? Also, if such a bonus is paid in one go, it could interfere with state benefits payments of low-waged workers and leave them struggling to budget and make ends meet.”

There is one more option – staff could be allowed to sell back unused holiday entitlement, subject to the minimum 5.6 weeks’ paid annual leave, which cannot be paid in lieu.

Staff loans

Many employers already offer staff the option of an interest-free loan, often for the purchase a transport season ticket or to buy a motor vehicle. Some employers have also offered these to those who in financial difficulty with a link to financial information and guidance. However, as Cotton details, such loans are not simple ‘fire and forget’ options and details the need to “consider HMRC regulations around interest-free loans, what happens if an employee leaves the organisation before paying off the full loan amount, and whether those who have taken out loans for financial reasons be offered financial education and awareness courses.”

Dealing with the cost of living crisis (Dall-E2, Generative)

Marshall takes this further and says that employers can loan employees up to £10,000 each year with no tax consequences – “essentially, the company pays the employee a set amount on a one-on-one basis with the agreement that they pay it back over a defined period.”

Administratively, she recommends that “employees sign a loan agreement setting out the terms of the repayment, including repayment term, authorisations for deductions from salary for repayments, repayment if they leave the company, and sanctions if the loan isn’t repaid.”

There’s also the need for employers considering offering such loans for those in financial difficulty to think about how these loans are described to staff. As Cotton explains, “some people might be put off from claiming them because of the stigma attached; this can cause problems later as these people might get into further financial difficulty, and it becomes more difficult for the employer to help.”

And Marshall wouldn’t disagree. For her, the main question is whether hardship loans are a good idea because “loaning money to employees won’t necessarily solve the problem and could lead an employee into further debt.” Further, she says that companies rarely do a ‘credit check’ when lending money – “what if the employee has no means of paying it back? Disciplinary action? Employers are not banks.”

Employers not in a position to pay more

It’s no secret that many employers are also facing a hike in their own costs, so their ability to help staff cope financially may be limited. However, Cotton thinks that they can still explore steps they can take to help their employees.

This could include cutting commuting costs by offering homeworking, flexible hours, season tickets or transport to work; helping staff with food through free or subsidised canteen meals and drinks, shopping discounts, luncheon vouchers or workplace cooking facilities; or support with housing through rental deposit schemes, accommodation and rent subsidies, or providing guidance on legal rights around housing.

Employers can also help with childcare by offering flexible working, paid leave for caring responsibilities, subsidised childcare, emergency childcare support, maternity loans, or guidance for staff to access the government’s tax-free childcare schemes.

To this list can be added salary sacrifice schemes can be used to efficiently assist with things like childcare vouchers or cycle to work programmes, while sharing the burden between employee and employer.

And on the subject of salary sacrifice schemes, with the extension of the ULEZ in London, Cotton’s seen some employers in the capital introducing schemes so that their staff can purchase ultra-low emission vehicles to avoid the ULEZ charge.

General working flexibility from employers is something else for employers to consider: Depending upon on whether an employee is more concerned by the cost of travel or the costs of utilities, they may wish to choose where they work to suit their financial situation. Employers have this flexibility, especially in businesses that have proved the effectiveness of remote working over the pandemic.

In a different direction, some employees may look to a second job to plug the gap in their growing outgoings. However, employers should be mindful of the Working Time Regulations to ensure employees are not working longer than a 48-hour week, which could also have a knock-on effect of a drop in performance and increased stress and worry.

Allied to this is the potential for a shorter working week where employees are paid for five days but work longer hours on four days. It is an option that some employers have implemented that could assist in accommodating second jobs; for employers this could save on office costs.

Other ideas – which Marshall suggests – is the provision of free meals at work as part an employee benefits package. She adds that one BT call centre has set up a ‘community pantry’ where staff can donate and pick up essentials such as dried pasta, cereal, and baby food. However, she says that “while some will appreciate these sorts of perks, it’s important to be mindful that many will be uncomfortable with the idea. Moreover, those who are facing financial hardship will likely not want their colleagues to know that they are struggling and may feel embarrassed to utilise such initiatives in an open office.”

In her view, the best and simplest way to avoid well-intentioned initiatives backfiring is to ask employees and set up a ‘financial support group’ made up of employees’ representatives.

Watch for discrimination

Lastly, there’s the matter of discrimination.

A hot topic for some, employers must be careful. In particular, employers must understand that employees with certain protected characteristics may be more affected by the cost-of-living crisis than others. Younger people tend to be on lower wages than older employees, and women are still more likely to be paid less than men. In addition, many people with disabilities are being significantly impacted and may need additional assistance.

For Cotton there may be operational issues about where the cut-off point is in terms of salary for who gets bonus payments and how to treat those who work part-time.

And Marshall adds another hotspot – awarding assistance only to staff who have not been absent from work could run the risk of those who have been absent due to disabilities, childcare issues, or maternity leave claiming this is discriminatory.

And what about a free canteen? Here Cotton asks, “how do you support workers who work remotely such as delivery drivers or on shifts when the canteen is closed?” Marshall adds another mantrap – that not all employees may be able to benefit unless the programme caters for those on, say, kosher or halal diets. What about those who celebrate Ramadan and are unable to eat?

Summary

There is no ‘one size fits all’ solution to the cost-of-living crisis. Of course, employers want to be benevolent and help staff, but in doing so they need to exercise thought, common sense and ensure that they neither bind themselves nor open the firm up to legal claims.

Good advice may be necessary.

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