The 2022 cost of living crisis in the UK has seen a record number of households face the biggest decline in income since the 1970s, with the Bank of England forecasting that inflation could hit up to 11% in autumn 2022 as a result of a number of factors including the Covid-19 pandemic, rises in national insurance (NI) contributions, unrest in Eastern Europe, and soaring energy prices.
Inflation doesn’t just mean rising costs for workers and their employers; UK organisations could soon be faced with workforces that are unengaged, distracted and unhappy because of the state of their finances. We are already starting to see the impact of inflation, with June 2022 research by Ciphr finding that nearly one in three (31%) of workers have taken on more hours or extra shifts at work to help pay bills, and two-thirds (68%) admitting that the cost of living crisis is causing them to feel stressed or overwhelmed at times.
While raising salaries in line with – or above – inflation is one solution, there are many other ways that organisations can provide their people with support to improve their financial wellbeing.
- Pay: real living wage, and salary increases
- Financial wellbeing assistance
- Pensions contributions
- Salary sacrifice
- Health and wellbeing services
- Income streaming services
- Get payroll right
1. Pay: real living wage, and salary increases
Historically, high rates of inflation hit the lowest-paid workers in Britain hardest. But the current rise in inflation has added pressure to households that are already struggling; according to data from Citizens Advice, 38% of low-paid workers are falling behind on basic household bills.
While the national minimum wage is mandatory, the real living wage (£11.05 in London; £9.90 in the rest of the UK) is voluntary and applies to workers aged 18 years and over. The real living wage rates are higher because they are independently calculated based on what people need to get by. Businesses that voluntarily opt into the real living wage scheme help to ensure that their employees earn a wage that is enough to live on and meet their everyday needs.
Some organisations are offering their workers salary increases that are in line with or above inflation, helping to stabilise (or raise) employees’ wages in real terms. But some employees are more likely to be receiving such increases than others; women were less likely than men to have been awarded a salary increase that was in line with or above the rate of inflation for 2022 (14% compared to 22% respectively), according to our recent research.
2. Financial wellbeing assistance
In unpredictable times, money becomes a great cause of stress and anxiety and, as the cost of living continues to rise, employers have a more important role to play than ever before in supporting their employees’ financial wellbeing. Workers that have a good overview of where their money goes each month can start identifying where savings can be made. Financial literacy and education should be on the mind of every employer, and form a foundational part of organisations’ reward and benefits packages.
According to a report by the CIPD, the professional body for HR in the UK, one in four employees say money worries affect their ability to do their job – and even those on the highest incomes are not immune. In the short term, the CIPD has identified three key recommendations that all employers should follow to help staff manage their finances:
- Ensure that pay outcomes and processes in your organisation are fair, such as by checking the reasons for pay gaps by gender or ethnicity
- Pay your workers as much as you can afford and ensure that those at the bottom of the pay scale earn enough to live on
- Point employees to useful sources of financial information and guidance, such as the Money Advice Service
3. Pensions contributions
Pensions are designed to provide money for employees’ retirement and are one of the most popular and widely available benefits. But since auto-enrolment was introduced and contributions became opt out (rather than opt in), can pensions really be seen as an extra benefit that employers can take credit for?
Candidates often ask about pensions at interviews, but may not understand them well enough to appreciate the real benefits of what you’re providing. Consider changing your pension policy so that you match any overpayment an employee makes up to a certain amount, and provide education about how pensions are structured and the financial benefits (both short and long term) of making contributions. Making information surrounding employee pension schemes more accessible and making pension contributions easier can alleviate long-term financial stress, particularly for younger workers.
Your organisation may also choose to work with a specialist provider of financial wellbeing guidance and support such as Mintago which, among its suite of services, helps employees track down lost pension pots.
4. Salary sacrifice
From 6 April 2022, the rise in national insurance (NI) contributions means the average worker will see their take-home pay fall by around £250 each year. However, employees may be able to minimise these losses by paying for some items before they are taxed.
Salary sacrifice schemes are an excellent way to help employees by providing vital benefits and financial support without them having to worry about how they will pay for it. It allows an employee to exchange part of their salary for extra benefits, usually non-cash benefits from the employer. These can include childcare vouchers, a company car, purchasing a bicycle through a cycle to work scheme, and additional pension contributions.
Once an employee enters a salary sacrifice arrangement, their pay is lower, and they pay less in tax and NI contributions. In turn, the employer will not have to pay employer NI on the part of the salary that is sacrificed.
5. Health and wellbeing services
Healthy workplaces help people to flourish and reach their potential and most organisations should be taking additional measures to support employee health and wellbeing during times of crisis. Mental health and money are connected and, according to Mind.org, “Poor mental health can make earning and managing money harder. And worrying about money can make your mental health worse.”
A caring employer should offer a range of effective workplace mental health programmes available and ready to access remotely. What is important is that businesses choose solutions and services that cover a broad range of issues affecting employee mental health and wellbeing, going beyond simply mindfulness and meditation, in order to benefit as many employees as possible
6. Income streaming services
Income streaming – which allows employees to draw down some of their already earned wages before payday – is a relatively new concept, but is gaining popularity as a way of helping employees better manage their finances, and avoid relying on expensive payday loans.
There are different models available; some will enable the employer to borrow the money they make available to their employees, and they charge the employer and employee a small fee for each transaction. In contrast, providers such as fastP.A.Y.E allow the employer to fund the streaming themselves and help their employee further by avoiding the creation of another debt cycle. This model allows more flexibility and does not charge a fee for those on minimum wage; it gives the employer full control as to how much they make available and how many times a month an individual can withdraw funds from their pay cheque.
7. Get payroll right
With personal finances being one of the main causes of stress for millions of people in the UK, the timing and accuracy of payroll processing plays a key role in the financial and mental wellbeing of employees.
According to a study conducted by YouGov, one in five UK workers said that anxiety over poor communication around pay makes them think about looking for a new job. This number rises to 22% in the medical and health services; hospitality and leisure sectors. A further quarter (25%) said their business can’t keep up with other staff demands due to the time they have to dedicate to payroll processes, and a similar number (26%) also believed the amount of time spent managing payroll is preventing them from developing business opportunities.
With this in mind, it’s essential that your organisation adopts the right payroll software to make sure employees are paid accurately, and on time, to make sure you alleviate any stresses they may have regarding their financial wellbeing.
Through its integration with Ciphr Payroll and third-party financial wellbeing services such as Mintago, Wagestream and fastPAYE, Ciphr Connect can help your organisation support employees’ financial wellbeing – helping to alleviate stress and ultimately boosting productivity. Book a demo to find out how Ciphr Connect could help your organisation more effectively support your employees through the cost of living crisis.
This article was first published in April 2022. It was updated in August 2022 for freshness, clarity, and accuracy.