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. In fact, according to research, UK workers think that inflation will soon rise again as a result of a number of factors including the Covid-19 pandemic, rises in national insurance (NI) contributions, unrest in Eastern Europe, and rising 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.
While raising salaries in line with – or above – inflation is one answer, there are many other ways that organisations can provide their people with support to improve their financial wellbeing.
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 compulsory, 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.
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.
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.
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. 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.
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 their pay makes them think about looking for a new job.