Pay during the cost-of-living storm: 8 steps to resilience

With few businesses able to afford inflation-busting pay rises, what can they do instead?

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According to Resolution Foundation think tank, the typical disposable income for a working-age household in the UK is on track to fall by 3% this financial year and by 4% in the year to April 2024, worse than during the last financial crisis.

The figures vary but the key message is the same: employees are going to feel worse off in real terms.

Few organisations will be able to afford inflation-busting pay increases, so what is the answer?

Building pay resilience

1. Understand pay in your market

Know the going rate for your employee roles and how you align with the market
Understand what other companies are doing to keep pace with change
Position your pay stance as competitive
Do not be in the 0-25 percentile or you will always be playing catch-up
Predict National Living Wage increases and try to maintain a healthy differential
Sign up for the London living wage

2. Enable pay progression

Create a framework to enable employees to progress their pay
This can be aligned to performance, competence or both – ensuring measures and assessment ensure return on investment.

3. Assess discretionary promotions

Are these promotions simply a way to achieve a higher salary?
Ensure salary increases via promotion are given for the right reasons
Make sure the decision-making is fair and consistent

4. Review other ad hoc pay increases

Look at why did were given, who received them and why
How much did it cost the business? Could that money be better spent?
Incorporating this spend into a pay review budget is fairer and provides a better return on investment

5. Make sure pay is targeted and fair

Prioritise pay adjustments to address low pay against the market, market premiums, flight risks and the lowest pay
Monitor your pay approach to mitigate equal pay claims
Put a strategy in place to improve your gender and ethnicity pay gap.

6. Protect the lowest paid

Guard against cost-of-living payments affecting universal credit and other benefits
Tailor the timing and delivery of any extra money to the individual’s need.

7. Protect the higher earners

There are significant tax implications when a pay rise tips higher earners over £100,000 a year. In real terms, for a single parent with three children, earning £1 more than £99,999 in salary could cost more than £14,000 in lost tax allowances and childcare. Opting instead for salary sacrifice schemes or enhanced pension could mean keeping this money.

A single parent earning £100,000 loses £2,000 tax-free childcare per child
Government-funded term time childcare reduced from 30 to 15 hours = £7,952 cost, according to the Coram Childcare report
£12,570 tax-free personal allowance is tapered away at a rate of £1 for every £2 earned between £100,000 and £125,140
A National Insurance rise of 2%
Potential student loan repayments at 9%

8. Explore business efficiencies

Efficiencies you have put off but which you could now put into practice could free up cash to raise base pay
Some companies are drawing down against savings or tightening their belt to give staff increases earlier than planned.