How does inflation affect employees: Jobseeker questions and answers
Estimated Read Time: 8 minutes
With Australia’s inflation rate at 7.8% - a 32 year high – workers across the country are feeling the financial strain of increasing cost of living. Understandably, the impact of inflation on employees has seen many workers exploring how to keep their costs down and lift their salary up to accommodate the economic pressures they are faced with.
In this blog we will cover the frequently asked questions Robert Half receives about the impact of inflation on employee salaries and provide tips on how to discuss this with your employer.
How does inflation affect employees salaries?
Inflation directly correlates to the value of your salary. High inflation, and the accompanying higher costs of goods and services, can weaken the purchasing power of your salary.
Put simply, if inflation reaches 10% but your salary remains the same as it did when it was at 6%, then you are earning 4% less in real wages. Every extra dollar you spend to cover the increased cost of purchases is a dollar that cannot be put aside for savings or discretionary goods – making it important for workers that their salary keeps pace with inflation. In some cases, this is putting households in a position where they are actively struggling to cover the cost of non-discretionary items as well.
Does my salary automatically lift with inflation?
No - an employer is not obligated to adjust their salaries to keep pace with the rate of inflation. While this can pose a problem when inflation increases – as it has recently – this can also be a protective buffer for workers when the rate of inflation drops, as it did at the onset of COVID.
In fact, inflation can make it harder for companies to offer salary increases at all. Just as rising inflation leads to higher costs for a consumer or worker, it also means increased costs for a business. This can have a negative impact on bottom line results – whether due to a drop in revenue or an increase in expenses - and therefore may have less money to put towards salary budgets for the year ahead.
That being said, some companies will incorporate cost-of-living increases into their salary budget calculations automatically as part of their retention strategy.
‘As the cost of living goes up, Australia’s skills short labour market is a source of protection for workers. Businesses are in a fierce battle for talent so need to invest in attracting and retaining skilled professionals, and salary is a key point of differentiation. Businesses are aware that if they do not find ways to support their workers and alleviate some of the financial pressures they face, staff are well positioned to secure work elsewhere,’ says Andrew Brushfield, Director at Robert Half.
Related: Discover more career advice here
Can I use inflation to secure a pay rise?
Rising inflation is a national issue, and as Australian businesses grapple with this alongside a challenging skills short market, employers are considering how inflation affects their employees and the remuneration and financial support strategies they can offer to help employees with the rising cost of living.
According to a Robert Half survey, more than half of employers are considering permanently increasing salaries (53%), while others are exploring one-off bonuses (49%) or temporary salary increases (43%).
This means that in many cases, your employer may already be exploring salary adjustments or an inflation bonus for employees to keep pace with inflation. If they have not explicitly raised their plans already, it is important to engage in a conversation with your manager about both the company's plans and your own salary expectations for the year ahead.
How can I talk to my boss about inflation?
Understand how your company calculates their salary budget
If the cost of living is on your mind, it is important to understand whether this will factor into your company's remuneration plan for the year ahead. If inflation is not automatically included, then you may need to consider negotiating a salary increase.
- During a one-on-one meeting: ‘What factors do you take into consideration when determining salary, and will this include the cost of inflation alongside my performance?’
- As part of a team discussion: ‘Inflation is putting pressure on myself and members of the team. Can we discuss what options the company is exploring to provide financial support this year?’
Find your number
Before entering any salary conversations, it is useful to come prepared with a realistic salary range based on both what your role is worth and your financial needs.
- Use the Robert Half Salary Guide to research the current market rate for your position, industry, and location as a benchmark for where your current salary sits.
- Calculate how much your current salary will need to increase to account for the current inflation rate.
Prepare your case
The cornerstone of any salary conversation should be your professional achievements and why you deserve an increase. This may help you secure a raise that exceeds, rather than matches, the rate of inflation.
Consider any metrics of success since your last salary review, whether positive performance reviews, project outcomes, skills developments or other accomplishments to demonstrate why your current salary is no longer reflective of your value in the market.
Opening the conversation
While engaging in salary conversations can make people uncomfortable, the rising inflation rate is a stark reality that every Australian is currently faced with. It is important to open any dialogue with a collaborative but clear attitude, using both your professional value and the wider market as negotiation tools.
- In the lead up to a performance review: ‘As part of my upcoming performance review, I would like to take the time to discuss opportunities for professional growth, as well as how my remuneration package can grow to reflect both my value to the team and the increased cost of living.’
- Following an accolade or commercial success: ‘Following [recent success], I would like to find a time to discuss my salary. With inflation growing to X%, I am eager to see my remuneration reflect both my value to the team and the increased cost of living.’
‘Some people would rather take on a new job than engage in a conversation with their boss they deem ‘confrontational’. However, with the impact of inflation on employees a top-of-mind issue, engaging in an open conversation with your current employer and giving them an opportunity to address your concerns is an important first step to take in securing your worth,’ adds Brushfield.
Related: Explore more tips on how to negotiate a higher salary this year
My company isn’t in a position to offer a pay rise. What should I do?
While a company may say no to a pay rise request, this is not the end of the conversation. Take the opportunity to discuss how inflation is affecting employees such as yourself, understand their reasoning and limitations, and use this to develop a strategy that meets both of your goals.
If the issue is a matter of timing, for instance a pay freeze, try saying:
‘While I appreciate that a pay rise is out of your hands currently, this is an important issue to me. When can we return to this conversation again?'
If a company is simply not in a position to extend more money, consider alternative ways that they can offset your total remuneration or reduce discretionary costs during the working week to offset the impact of inflation on employees. This could include:
- Increasing the option to work from home more frequently to reduce travel costs.
- Introducing a salary packaging scheme to direct pre-tax income to benefits such as cars, loan repayments or childcare costs.
- Organising in-work meals to reduce week-day food expenditure.
- Subsidising team exercise or complementary health services such as flu shots, eye, skin and dental check to reduce health and wellbeing costs.
Related: What is salary packaging?
Our experienced team of talent specialists are here to help you get the most out of your career. If you are ready for a new role, contact us today.
