Cost of living | Highest pay rises in years 'still below inflation'

Highest pay rises in years 'still below inflation'

Pay rises are at their highest in a decade – but still fall a long way short of inflation, new research has found.

Data from HR solutions provider XPertHR shows that the median pay rise for the three months to the end of February 2022 was 3%, a number that remains unchanged from the last rolling quarter. However, with inflation now expected to hit 7% in April and possibly exceed 8% in the next few months, a pay rise of 3% is less than half what would be needed to make up the shortfall – and staff will feel the squeeze on their pay packets.

The research by XpertHR shows that employers are, on the whole, going the extra mile to attract and retain employees – as one might expect in a tight labour market where businesses are all competing for talent. The HR solutions provider surveyed more than 268,000 employees and found that pay rises have increased significantly since this time last year (when the median pay rise was just 1%) and that higher earners have received a bigger boost (4.8%) to their pay packet than lower earners (2.5%).

Pay freezes are also few and far between – the XpertHR research found that just 3.5% of the employees surveyed had received no pay rise over the last 12 months, as opposed to 34% this time last year.

Looking ahead to the rest of 2022 and beyond, XpertHR found that pay rises are forecast for nine in 10 employees, with pay freezes predicted to drop to 4.7% (compared to a prediction of 18.5% the previous year).

However, although the end of pay freezes and return to a pay rise that, in a normal year, would be in line with inflation is a positive for employees, the fact remains that this is not a normal year. A combination of supply chain disruptions and pent-up demand for consumer goods caused by the pandemic, Brexit, and now the Ukraine war, combined with soaring energy prices, have sent inflation rocketing.

Although the Bank of England says that this shouldn’t prove to be a long-term problem and that it anticipates getting inflation back to its target of 2% within two years, the next couple of years will still prove worrying for both businesses and households who will have to try and absorb the spiralling costs.

Financial support

And with their employees struggling, business leaders are already considering ways in which they can offer them additional support. One solution is to offer employees pay settlements that are in line with inflation – but for many businesses, particularly SMEs who may already be struggling themselves, 7% or 8% pay rises are unrealistic. Another solution is to take a more holistic approach to financial wellbeing and consider offering (or make employees aware of) existing benefits such as season ticket loans and lifestyle benefits such as gym membership and discount codes, as well as promoting flexible and hybrid ways of working that can be more cost-effective for employees.

HR managers need to be aware than employees who are struggling with financial worries are more likely to be disengaged and unproductive at work – or may be looking for employment elsewhere.

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Commenting on the findings, Sheila Attwood, XpertHR pay and benefits editor, said: “The recent increase in XpertHR’s headline pay award reflects employers trying to keep pace with rising inflation and contending with labour market shortages. But what would have been a reasonably high pay increase a year ago, global pandemic aside, now feels inadequate. With the latest predictions from the Bank of England suggesting that consumer prices index inflation could reach around 7% in spring 2022, a 3% pay rise equates to a notable real terms pay cut, as the gap between wages and the cost of living continues to widen.

“To mitigate the issue, some employers plan on offering one-off payments on top of the annual pay review and others are considering a supplementary non-consolidated payment to be paid quarterly for the rest of 2022 directly in response to the cost-of-living increases.”

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