By hayley - Essentially, as inflation increases, each pound buys fewer goods and services than before.
This puts pressure on both consumers and businesses alike.
Businesses are feeling the pressure especially when it comes to payroll management. With the cost of living increasing, employees are facing higher expenses, leading to growing expectations for salary adjustments.
Then there is the upcoming National Minimum Wage/National Living Wage increase effective from April 2025.
But how does inflation affect payroll, I hear you ask, here’s how:
- Salary Increases: Businesses are struggling to keep wages aligned with inflation. This challenge is especially felt in sectors with tight budgets.
- Employee Retention: With inflation squeezing personal finances, employees are seeking higher-paying roles, making retention harder for employers.
- Payroll Budgets: Rising wage expectations and benefits costs are straining payroll budgets, forcing businesses to rethink their compensation strategies.
- Cost of Doing Business: Higher operational costs due to inflation are affecting business' ability to offer competitive pay, pushing some to delay or freeze salary increases.
What can be done?
- Prioritize transparent communication with employees
- Reevaluate compensation packages and offer non-monetary benefits, where possible
- Stay informed on inflation trends and adjust strategies accordingly
- Seek innovative cost saving solutions to offset the rising costs – think outside the box, be creative
- Plan ahead
I always recommend estimating your payroll costs for at least a year ahead, but preferably 5 years. Including estimated pay rises and adjustments for rates and threshold changes. Now you'll not be able to get this accurate, rates and thresholds and legislation change over time, but it will give you guide. Analysing your payroll and projecting your expenses let you understand your payroll costs, the impacts of potential changes, and keeps you in control.
Adapting to inflation is tough, but businesses that manage payroll effectively, and plan well, will better navigate these challenges.
Hayley