Preparing your workforce against the impact of Inflation

By Carver Edison
July 2022

Understanding the size of the problem: How big is Inflation?

Inflation is currently at an all-time high. The Bureau of Labor Statistics (BLS) reported that consumer prices rose 9.1% year over year in June 2022, the highest in the last 41 years. Workers’ hourly wages have fallen 1% during June 2022 due to inflation and are down 3.6% from a year ago.

Rents have risen 5.8% compared to the previous year, the highest since 1986. Energy prices have soared 7.5% just from May to June 2022. Gas prices are higher by almost 60% compared to a year ago.

Borrowing costs for mortgages, credit cards, student loans, and other debts are higher, with the average rate on the 30-year fixed home loan already surging to nearly 6%, the highest since 2008. For someone buying a median-priced house in the US, that means monthly payments have gone up by about $600 since the beginning of 2022.

Identifying the impact of the problem: How is Inflation Affecting Employees?

Higher inflation means the buying power of workers' take-home pay is shrinking. After inflation, the average hourly earnings fell 3.6% from June 2021 to June 2022, the Bureau of Labor Statistics reported in July.

56% of remote/hybrid workers say that inflation is causing them to worry about their salaries or current job situation compared to 51% of in-office workers.

According to the 2022 Gig Payment report, 85% of workers have increased or plan to increase their amount of gig work in the past six months, with 58% citing inflation as the reason behind this change.

The effect of inflation on the cost of healthcare and other employee benefits is another factor that employers should keep an eye on as an area of opportunity to improve compensation packages for employees. Covering a larger part of the cost of health insurance, or life and disability insurance, can have an impact on productivity and help with long-term retention by lessening workers' stress over being able to afford the cost of treatment should they or family members become sick or injured,”

wrote Denise Stefan, president of HR services provider Engage PEO, and Steve Scott, the firm's chief operating officer. The same is true with other financial benefits in the workplace.

The 2022 compensation best practices report by Payscale revealed that 85% of organizations are worried that the planned 2022 pay increases may not be enough due to rising inflation rates. 76% of organizations faced labor shortages or difficulty attracting talent in 2021, and 49% said that voluntary turnover rates are rising compared to previous years.

CNBC indicated, “Forty-four percent of millennial respondents said higher rates have caused them to delay purchasing a new home, compared with only 6% of baby boomers. Nearly half of millennial millionaires said they are delaying the purchase of a car because of higher rates, more than double the rate of baby boomers,”

Building a solution for the problem: What can Employers do?

Economist Giacomo Santangelo says,

“Firms aren’t going to slow down hiring; they’re going to change the way they hire.” He expects employers to move from the traditional concept of hiring one full-time worker to perform a job, to hiring multiple part-time contractors or gig workers as a cost-saving measure.”

Redfin and Compass, a property company, announced plans to reduce their staff by hundreds as a result of the downturn and higher rates. Companies like Uber, Amazon, Walmart, Tesla, and Spotify, have also announced plans to slow or halt hiring.

A survey by HR consultancy, Mercer, in January 2022, revealed that nearly a quarter of 2,565 HR managers said they are considering additional reviews or salary increases to address inflation this year.  

"In many cases, employers are responding by boosting pay, enhancing health and retirement benefits, and offering more flexibility to not only find workers but also keep the ones they have from looking elsewhere," said Steve Nyce, Senior Economist at WTW consultancy.

According to Avier Wealth Advisors, as of January 2022, Facebook parent Meta is matching $1 for $1 of an employee's 401(k) contribution up to 50% of the annual contribution limit. Another survey of about 100 companies conducted by investment-consulting firm Callan LLC, indicated that 16% of large and midsize U.S. employers plan to raise 401(k) contributions or reinstate a contribution match this year.

"In an inflationary environment, now is the time for employers to revisit the possibility of increasing their HSA contribution levels. If budgeting for an increase in employer HSA contributions for all employees is cost-prohibitive, evaluate providing additional HSA contributions for lower-paid employees,” Mercer, an HR consultancy company, advised companies based on their 2021 survey.

Shelly Holt, Chief People Officer at Payscale, said “When it comes to pay, employers are scrambling to figure out what to offer new hires and how to structure salary increases to retain their current workforce. As a result, compensation planning has never been more important to get right."


How the Employee Stock Purchase Plan (ESPP) can help

The ESPP is a powerful way to align company and employee interests that enables employees to build an equity stake in the company, while driving paid-in capital for the organization. Most ESPPs offer employees a minimum of a 15% discount off of company stock, which is an unparalleled benefit for employees. The problem with most (or Traditional) ESPPs, however, is that the lionshare of them require payroll deductions in order to buy into the plans. What this means is that financially fragile employees, alongside those that are just starting out, may be left on the sidelines of participation. Employees who do not participate in their ESPPs often leave a considerable amount of money on the table; forgoing, on average, $3,446 USD per year [Money Left on the Table: An Analysis of Participation in Employee Stock Purchase Plans].

The solution, however, is simple: The Cashless ESPP®. The Cashless ESPP® is powered by Cashless Participation®, an award-winning ESPP enhancement that enables employees to own more company stock without shrinking their paychecks, meaning they can contribute to their retirement AND create a savings vehicle through their ESPP. Through The Cashless ESPP®, employees can own 50% to 150% more shares, compared to a Traditional ESPP, which means employees can participate in their ESPPs with little (to no) eligible compensation, giving them more free cash flow to contribute to their retirement benefits and more overall financial confidence. This also means that companies benefit from increased adjusted paid-in capital, making The Cashless ESPP® a shareholder friendly way to increase Total Rewards packages.

Helping employees access this money through ESPP participation can lead to greater financial security and greater confidence in investing in a 401(k). Thanks to the Cashless ESPP®, employees can benefit from long-term company alignment and greater financial security through their ESPP alongside long-term financial security through their retirement plans. The financial wellness education provided through The Cashless ESPP® also empowers employees to understand they can do more without stretching their finances.


Start before it’s too late

If you’re a business leader in finance, human resources, or people management, you already know how employee engagement impacts employee productivity. When employees feel genuinely good about their work, environment, and employer, they naturally tend to perform better, displaying higher levels of engagement and a deeper sense of ownership.

We’d love to take you through the journey of how The Cashless ESPP® financially empowers every eligible employee while increasing their loyalty and commitment to their employer. We’d also love to share practical case studies from some of the most influential companies on how they’ve benefited from The Cashless ESPP®.

What else is coming for businesses in an inflation-inflicted market? The best we can do as businesses is to prepare for all possibilities. The smartest way to prepare for the unknown is to empower the workforce to become self-sufficient to survive. With a sense of empathy and strategic foresight of what’s coming over the horizon, leaders need to take the initiative of understanding employee needs, and identify gaps and opportunities for growth, while asking practical questions like, “What are some of the biggest concerns currently running in the minds of your workforce? What specific challenges are they encountering or preparing to encounter in the near future?” Once you’ve identified the biggest hurdle, the next step is building together a solution that will help everyone navigate through the challenges of tomorrow.

For more information and conversations on the Cashless ESPP®, please book a meeting with us or write to us directly:

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