Inflation-Proofing Employee Benefits

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November 11, 2022 Eitan Milstein

Household budgets continue to feel the pinch of inflation as food, gasoline, and housing are taking a bigger bite out of employee pay and savings. 

Even though inflation eased slightly to 7.7% in October 2022 – down from its June peak of 9.1% – wage growth continues to lag consumer price increases. This forces consumers to borrow more. In the third quarter, total household debt – including credit cards, auto loans, and mortgages – rose at the fastest pace in 15 years – up 2.2% over the prior quarter and 8.3% year over year.

The result? Many employees are stressed and motivated to seek higher-paying job opportunities.

With 1.7 openings for every unemployed worker, employees are in the driver’s seat. The majority of US workers expect an annual pay raise of 4% or greater, according to Grant Thornton's 2022 "State of Work in America" survey. But middle-market businesses lack the necessary financial resources to keep wages on pace with inflation.

These pressures are forcing companies to find new ways to retain and incentivize workers, while easing inflation concerns. The list below offers some short-term approaches, as well as options for building resilience to market changes over a longer horizon.


Inflation Quick Fixes

Offer flexible work.

After more than two years of remote and hybrid offices, employees have come to appreciate the value of shorter commutes and increased family/leisure time. Establishing a flexible work policy is a quick way to gain a competitive edge in hot job markets: 87% of Americans are likely to utilize the option if offered.

And flexible work is not an all-or-nothing proposition. Employers can offer a range of flexible work options, including hybrid work, flexible hours, and job-sharing. For some companies, it may even offer financial advantages. A recent study found employers can save up to $11,000 per year for every person who works remotely at least half of the time.

Delay healthcare premium increases.

Along with everything else, inflation has caused healthcare costs to rise 5% in 2022. A jump in premiums is inevitable, but employers can control when those increases hit employee paychecks.

Delaying these increases for three to six months can help ease the financial pressure on workers. It’s a simple, fast action with a relatively minimal impact on companies’ operational budgets.

Provide emergency savings accounts.

As wages fall behind inflation, making ends meet is becoming more difficult. Six in 10 Americans lived paycheck to paycheck in October, and one in five of these consumers have trouble paying their monthly bills. That means more people risk hardship if they experience a financial emergency.

Emergency savings accounts can help employees cover unexpected expenses. Funds are added to the account through automatic, post-tax payroll deductions. ESAs can also include an employer matching component. While the accounts largely serve as a money management tool, ESAs have become popular workplace programs because they help alleviate the stress of financial uncertainty.


Longer-Term, Inflation-Proofing Measures

Invest in employee development.

Education incentives and training initiatives are well-placed investments that benefit employees and employers alike. Dedicated programs are proven morale boosters that foster more competitive workforces, regardless the economic climate.

Tuition reimbursement programs are tax-deductible and can uniquely bolster a company’s employee retention strategy. Full benefits are generally predicated on continued employment.  

Reevaluate retirement plans.

Two-thirds of consumers say they’re worried about how inflation will impact their ability to save. A company’s existing 401(k) plan, and similar offerings, should reflect and address today’s needs.

Benefit managers can adjust a range of plan features such as instituting auto-enrollment, tweaking matching and vesting policies, and offering lower-cost investment options. It’s also common for sponsors to evaluate plan expenses and consider alternative vendors.

Establish an employee stock ownership plan.

As part of a retirement program reevaluation, closely-held companies should also consider another defined contribution plan: the ESOP. A well-crafted employee ownership strategy can help middle market businesses achieve several continuity-focused goals, including staff retention, cash flow optimization, and enhanced performance.

As benefits strategies, ESOPs offer employees an opportunity to build wealth that isn’t impacted by present-day market pressures. Plan participants are allocated company stock throughout their tenures. Employee owners reap the market value of their vested shares only when they leave their companies. Sale proceeds can then be rolled over into another tax-deferred retirement plan.

In general, employee-owned businesses have proven to be more resistant to economic fluctuations than their peers. While tax benefits associated with leveraged ESOPs offer financial ballast, the soft benefits of employee ownership help foster cohesive and more productive workplaces, as evidenced by extensive research.


Inflationary periods challenge even the best-run businesses.

Nonetheless, most employers have options when it comes to fortifying their employee benefit offerings. A clear-eyed assessment of current challenges and goals, and the prudent application of one or more of these measures, can help companies attain their short-term goals and become even stronger workplaces over the long term.

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