Stay Informed: Unpacking Today's Trends

How inflation and rising costs impact HR

Executive summary

The United States is facing the highest inflation rate in 40 years. This puts pressure on employers to provide inflation-based salary increases or risk losing talented employees.

In this article, find out:

  • How rising inflation rates impact HR
  • The types of non-financial incentives you can offer to increase employee loyalty
  • How HR analytics can help you retain employees in a tough economic climate

How inflation and rising costs impact HR 

As of July 2022, the US inflation rate is 8.5% – the highest in 40 years. To keep up with the rising cost of living, workers are seeking higher salaries. This is one factor fueling high rates of wage growth.

In June 2022, wages increased 5.5% over the previous year – high, but still well below the inflation rate.

Wage inflation creates a catch-22 for businesses. On the one hand, paying higher salaries affects a company’s profitability. On the other hand, if a company doesn’t provide inflation-based salary increases, employees under financial stress may not perform as well, and some may decide to find a higher-paying job.

Let’s look at how inflation impacts HR and what you can do to minimize the negative effects on employees.
  1. Higher salary increases

Inflation and wages are linked. When inflation rises, companies are under pressure to increase workers’ salaries. But that, in turn, means companies may raise prices of their goods and services. This can lead to a wage-price spiral that pushes inflation and wages even higher, that puts businesses in a bind. Raising salaries too much could hurt your bottom line and contribute to ever-worsening inflation.

If you don’t raise salaries enough, some team members might start looking for another job.

According to the Pew Research Center, from April 2021 to March 2022, a period where America felt the brunt of the Great Resignation, 60% of workers who changed jobs enjoyed an increase of 9.7% in real earnings, while those who remained in their job had a 1.7% fall in real earnings.

While salary increases can keep employees happy, loyalty to a company isn’t only based on compensation.

To encourage employee loyalty, find out what else they value. For some, it might be more verbal affirmations and public praise. For others, a clearly defined career pathor more training and education opportunities.
  1. More resignations

The Great Resignation isn’t only influenced by what employees earn. It’s also about finding an employer who is willing to meet them halfway. As inflation increases, employees have to pay higher transportation, lunch and childcare costs. Some may consider changing jobs if it will help lower work-related expenses.

The obvious way to solve this problem is to give inflation-linked raises. But if you can’t afford a higher wage bill, there might be other effective ways to reduce attrition of high valued employees, such as:

  • Switching to a hybrid work model that allows employees to work remotely. Working from home a few days a week can help them save on food, fuel and childcare costs.

  • Awarding performance bonuses. If you can’t afford across-the-board salary increases, perhaps you can afford to reward your top performers a generous bonus.

Rising inflation leads to budget cuts. A smaller budget may affect your recruitment and retention plans or force you to reduce headcount.

To minimize disruption, look for low-impact ways to reduce costs. For example:

  1. If you fill more roles internally, there will be less pressure to lay off staff.
  2. If you find ways to reduce the quit rate, there will be less need to run expensive hiring processes.
  3. If you outsource certain tasks, there will be less need to hire new people.

Use HR data to guide you through this challenging period
Agile HR Analytics (Built on Microsoft Power BI) Making the right HR decisions during a period of economic disruption is tough if you’re working blindly. So let your HR data be your guide.

Agile HR Analytics is a comprehensive HR data analytics software that can give you current and historical statistics on:

  • Recruitment
  • Salaries
  • Employee performance
  • Training
  • Employee turnover rates

You’ll be able to track salary data, bonuses, employee training, absenteeism, employee turnover and more.

With our easy-view dashboards, you can see your total wage bill and average salary per employee at a glance. You can measure your salary data against market averages and inflationary increases to see if your projected pay increases are fair in the current economic climate.

HR analytics can also help you spot worrying trends in employee retention. For example, are you losing talent because they are looking for better prospects elsewhere?

With smart HR analytics software, you can predict employee attrition and put a plan in place to retain more of your top talent.

predict employee attrition and put a plan in place to retain more of your top talent.

Even absenteeism rates can tell a story. If you’ve noticed a spike in absenteeism, employees could be resorting to calling in sick more often to save fuel.

Your HR data can reveal a lot. With intelligent HR software like Agile HR Analytics, you’ll gain a deeper understanding of how economic pressures are impacting your organization. Based on what it reveals, you can adjust your HR strategy to retain, rather than lose, employees.

For a free demo, contact Agile HR Analytics by emailing or fill in this contact form.

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