28 February 2023
With inflation still hovering around 10%, mortgage rates increasing and the planned rise in the energy price guarantee in April from £2,500 to £3,000, the cost-of-living crisis will continue to bite throughout 2023.
Whilst employees may be hoping for inflation busting wage increases, this may not be feasible for many employers who are also being hit by an increase in the costs of raw materials, interest rates on loans and energy price rises. Many employers may also be reluctant to award such large pay increases if the Bank of England’s prediction that inflation will fall sharply to 4% by the end of the year is correct.
With the supply of labour still tight, employers will be wanting to offer something though to retain their existing talent. It may be that the offer of flexible working is enough to satiate some workers in the absence of a large pay increase. However, that may not be an option where physical presence at certain times is a requirement of the role or may not be a compelling proposition since hybrid working has become the norm following the pandemic.
One off cost of living payments or bonuses are therefore an option as they may cover employees in the short-term whilst not becoming a permanent addition to the bottom line. Care should be taken to ensure that such payments are expressly offered as discretionary one-off payments to avoid an expectation of being repeated in the future. They should also be applied in a non-discriminatory way so that they are considered for all employees and that those on family friendly leave or long-term sickness absence do not miss out. Pro-rating of any bonus based on contractual hours of work can discriminate against females who are more likely to work part-time hours due to child-care responsibilities, therefore any decision to do so should be thought-through and justified.
Loans or advances of wages can also be considered by employers as a means to providing access to additional finances during times of hardship. However, the conditions of the loan should be considered to ensure the employer does not fall foul of the provisions of the Consumer Credit Act. Any loan or advance should also be properly documented in writing and signed by both parties beforehand to ensure there is no dispute over the employer’s entitlement to make deductions from future wages to repay the loan. If the employee is paid at or near National Minimum Wage (NMW), this would be a legal requirement to ensure the deduction made to repay the loan in a later pay reference period does not reduce pay below NMW.
These are just a few ideas, but there are others. Importantly though, proper consideration should be given to the legal considerations of any support offered. There are also tax consequences too, some of which we explored in this article.
If you have any queries regarding these issues, please contact Charlie Barnes.