Demands for pay rises may be the last thing small businesses feeling the squeeze want to grapple with. But just as their own costs are soaring – research from the Federation of Small Businesses shows that 82% are worried about inflation – so too are those of their staff. Employees facing a cost-of-living crisis will naturally hope that their employers will be generous.
The danger of a confrontation is very real, as the growing number of wage disputes across the public sector underlines. And while many employers may not need to think about pay rises until later in the year – if salaries work on a calendar-year basis, say – they should be prepared; inflation is forecast to remain high for the foreseeable future.
So you will need to consider carefully what your business can realistically afford to offer staff, given your forecasts for costs and revenues over the next couple of years, and what staff will be looking for.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Inflation is expected to average around 7.5% over the course of 2022, falling to around 4.5% in 2023, so this gives you something of a base level. If you offer staff less than this, you’re effectively asking them to take a pay cut. You may feel you have no choice but to do that, but if so, you will need to manage the situation carefully.
One useful thing to do straight away is a pay-benchmarking exercise. Using resources such as Glassdoor and LinkedIn, analyse whether what you currently pay at different levels of the business is competitive compared with other employers in your sector. That at least gives you an idea of whether staff are already losing out financially. If so, below-inflation pay increases may be even more difficult to justify.
It is vital that you are as open and transparent as possible with staff about what the business is in a position to offer. If your company’s finances don’t provide the headroom to deliver the pay increases staff are hoping for, explain why.
That doesn’t have to mean opening the books for all employees to inspect, but there will be information you can share. And in smaller businesses, it can sometimes be easier to brief employees on the pressures facing the company.
Equally, employers are going to have to accept that with employment levels at an all-time high, many unhappy staff will find it easy to find new jobs elsewhere.
If you can’t finance inflation-beating pay rises, is there something more affordable you can offer instead? That could be more flexible working practices, for example, or additional holiday. Indeed, growing numbers of employers now offer flexible benefits packages, enabling staff to swap pay for perks such as help with childcare or a gym membership. These can be valuable staff-retention tools.
In fact, this is a potentially important opportunity to think more broadly about what staff at your business value. If you’re now panicking at the thought of staff leaving en masse, or taking industrial action because you can’t afford the pay rises they want this year, there may be something wrong with your employee-value proposition.
Most research suggests that salary is not the be-all and end-all for most employees. They want to work for organisations whose values they share and where they feel they have opportunities to develop and progress. Offering that kind of culture is important at any time, but this year, when people are focusing on pay, it could be the difference between keeping staff and losing them.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Unemployment rises as over 50s head back to workNews The latest figures from the Office for National Statistics showed a 0.1% increase in unemployment, but a decreased rate of inactivity.
-
The UK jobs market is still red hot – but will it last?Analysis For the first time ever, there are more job vacancies than people to fill them, and wages are rising at a decent clip. But that might just be a temporary thing, says John Stepek. Here’s why.
-
The best ways to hire staff in these uncertain timesAdvice Taking on permanent staff for your business comes with risks, but there are alternatives says David Prosser.
-
Let’s adjust to living with Covid and get Britain back to workOpinion The Covid-19 era is over, leaving a stagnant and lethargic workforce in its wake. It’s time to wake up, says Matthew Lynn.
-
Wages still aren’t keeping up with the cost of livingAnalysis The UK jobs market continues to boom, but wages still aren’t keeping up with the rising cost of living. John Stepek explains why.
-
The strong US jobs report is good news for the economy, but not so much for marketsAnalysis January's US jobs report came in much stronger than anyone was expecting, with 467,000 new jobs added to the economy. But things might not be quite as rosy as they seem, says John Stepek. Here's why.
-
A wage-price spiral is stirring in the UK – what does that mean for your money?Analysis The cost of living is rising – and wages aren't keeping up. But with workers having more power than they’ve had in a long time, they're demanding more – and they may well get it. John Stepek explains what's going on.
-
The UK jobs market is booming – but wages are struggling to keep up with pricesAnalysis Britain’s jobs market is booming, with wages rising and plenty of of vacancies. But inflation is rising faster than wages can keep up. John Stepek looks at what it all means for your money.
