Cost-of-living crisis: frequently asked questions

With high inflation and prices for energy, food and fuel soaring, the UK is grappling with the worst ‘cost-of-living’ crisis in recent years. This is causing problems for both employers and employees. It also comes hot on the heels of the Covid-19 pandemic, from which many households and businesses are still reeling. Employers may be struggling to absorb higher costs that can’t be passed on to customers. Meanwhile, many employees are facing financial worries with their salaries not keeping pace with inflation. Alongside resulting financial stress, this can impact their productivity and engagement at work.

We’re seeing proactive steps by employers, employees and the government to tackle the situation.

What steps are employers taking to support their staff financially at this time?

Two of the main ways that employers are supporting employees is by giving them a pay rise or offering a ‘one-off’ cost-of-living payment or allowance.

The entitlement to a pay rise is usually not contractual but given at an employer’s discretion and often set alongside a performance or annual review. Rather than waiting for review time, some employers are now bringing these reviews forward, or even running an extra review altogether this year, to help ease employees’ financial concerns. Some, although by no means all, are increasing salaries in line with (or, in rare cases, even above) the current inflation rate, to keep salaries in line with rising prices. This is certainly being factored into the setting of the National Living Wage, which we cover below.

‘One-off’ payments are an alternative step to help employees with their bills (a pay rise being a permanent step unless an alternative arrangement is expressly agreed). Care should be taken when communicating these payments to employees to manage expectations or requests for any future, similar payments. It is possible to put conditions on the payments, such as phased repayment conditions in the event an employee leaves employment, but this does not appear to be the norm. Employers should also check whether a one-off payment is pensionable, which is determined by the pension scheme rules.

Other financial steps employers may wish to take include offering company loans, salary advances or vouchers or subsidies for lunch or travel. The terms of any company loans should be clearly set out in writing, including repayment obligations. Consideration should also be given to an employee’s ability to repay company loans or salary advances.

Of course, not all employers are in a position to offer significant pay rises or one-off payments. Alternative, supportive measures that employers might consider are set out below. While some of these may still have a cost for the employer, they may be more affordable than across-the-board pay rises.

Are there any restrictions on making unilateral payments or allowances?

In unionised environments it isn’t so easy for employers to make unilateral payments or pay allowances if pay is subject to collective bargaining. Indeed, employers who have agreed collectively to bargain pay and yet unilaterally make additional payments to their employees without first doing a deal with their union(s), or exhausting collective bargaining with them on the topic, risk punitive fines of £4,554 per employee. For further information on this, please see our recent article on this issue.

If one-off payments are offered, can these be targeted at those under a certain earning threshold and therefore likely to be the most in need?

It is possible to target payments to those most in need by setting a threshold salary for this support. However, employers should be mindful of a few tricky issues relating to this.

• Part-time employees: For example, an employer may want to offer a one-off payment of £1,000 to all employees earning below a certain amount, for example, those earning below an average salary of £35,000. For a part-time employee, an employer needs to determine whether to use full time equivalent (FTE) salary, for example, £50,000 (which would place the employee above the threshold), or actual earnings, for example, £30,000 (which would place the employee below the threshold). Choosing the FTE salary means that some lower paid employees would lose out on the payment, potentially resulting in part-time or sex discrimination claims. Employers also need to be sure that in implementing this supportive policy, they are achieving their aim of helping those most in need. Many working part-time may do so due to caring responsibilities and could be severely affected by the current climate. They would risk losing out if the focus is on FTE.

• Universal credit: Employers should be careful that a one-off payment doesn’t interfere with an employee’s entitlement to Universal Credit (some lower earners may potentially be in receipt of Universal Credit). Making incremental payments could be an option but this clearly varies from person to person (and is complicated) so each employee will need to get advice on their own circumstances.

If pay rises/cost-of-living allowances aren’t an option, what other supportive measures might employers consider?

Whether it’s not financially viable, or the employer is hamstrung by difficult collective bargaining, there are a host of reasons why one-off cost-of-living payments might not be a viable or attractive option. Nevertheless, there are a range of other supportive measures that employers have at their disposal:

• Direct staff to resources to assist them in making decisions relating to their financial wellbeing. Employers should consider whether their existing EAP programme offers any kind of practical guidance. Can this kind of education be provided internally? Related to this, during times of financial crisis, employees, especially those who are younger, may deem pension payments a non-essential and be tempted to stop contributions. Employers should therefore ensure they are communicating long term financial implications of such a decision.

• Ensure that staff understand what existing benefits are available to them which may assist at this time, financially or emotionally. These may be financial benefits such as season ticket loans or staff discounts, or counselling services offering wellbeing support at this stressful time.

• Does the existing hybrid working policy tie staff into expensive travel costs and if so, can this be reviewed?

• Although statutory holiday (5.6 weeks) can only be bought out on termination, this would be an option for contractual entitlement in excess of this statutory minimum. Offering employees the ability to ‘sell’ their excess holiday could provide a top up payment to the employee, and extra cover for the business. However, the fact that this would be difficult from an administrative perspective for employers is likely to make this quite an unattractive option.

How will the steps the government is taking to address this crisis impact employers?

During her leadership campaign, Prime Minister Liz Truss pledged to cut taxes and reduce red tape for all businesses. Recent announcements have seen these measures being put into practice, with many likely to significantly impact on employers and employees:

• National Insurance Contributions (NICs): from 6 November, the recent 1.25% increase in NICs will be reversed. This will, of course, have an immediate impact on the amount of money in the pockets of both individuals and employers. However, it is another pay roll complexity for employers to cater for.

• National Living Wage (NLW): In October 2022, the Low Pay Commission (LPC) will publish recommended rates for April 2023 and increases could be significant. The government’s (pre-Covid) policy objective was for the NLW (which is higher than the National Minimum Wage) to rise to two-thirds of median earnings by 2024. The government has asked the LPC to review this, given the steep rise in inflation and cost-of-living crisis. As inflation is factored in to recommended uplifts, the LPC may propose significant rises to the rates.

As NLW rates increase, employers who had previously been satisfied that working arrangements were comfortably compliant with these minimum levels need to ensure that this remains the case. This can sometimes mean tricky calculations and analysis, which our team is happy to assist with.

Although not a government led scheme, employers that commit to wages above the NLW by undertaking to be Living Wage Employers (a voluntary scheme which calculates wage rates independently based on what people need to live on) will need to implement recent increases of 10.1% (8.1% in London). The organisation has indicated that this should be implemented by 14 May 2023 at the latest.

Should employers allow employees to take on a second job? What are the risks?

As disposable income is squeezed and some households struggle to make ends meet, some employees may be looking not only for extra hours in their current role, but for a second job with an unconnected employer. In fact, recent research has shown that a striking 16% of workers surveyed have taken on an additional job to help cover cost-of-living increases.

Many employees may not be permitted to do this without their employer’s consent. This could be due to an exclusivity clause in their contract, requiring express permission to be engaged or employed by any other business.

If employers are asked to sign off a request of this nature, what would the relevant considerations be?

• Has the employee opted out of the 48-hour limit under the Working Time Regulations? The 48-hour weekly average is the limit on working time even if the employee has more than one job and this will obviously be difficult to quantify if the employee has two jobs.

• Are there health and safety risks with the employee having more than one job? If the employee has a safety critical role, it is important for the employer to be sure that they can still safely fulfil their duties if their energies are stretched across more than one role.

• If the employee will be in a difficult financial position without taking on an additional role, is there anything else the employer can do to offer support, whether financial or otherwise?

• Is this likely to impact on the employee’s performance? Or if the employer already has performance concerns, could the strain of a secondary role be the reason?

If an employee does not seek consent but takes on a second role, that could potentially be grounds for disciplinary action. That said, even if an employee was in breach of either a term of their contract or a policy, any disciplinary action taken would need to be reasonable in the circumstances. That means looking carefully at the particular case and considering whether discretion can be exercised.

Many of these considerations are equally applicable to the phenomenon of the “side hustle”. Side-hustling (developing outside interests into a second income stream) really took hold during the pandemic, particularly with Generation Z. But unlike a secondary occupation, a side hustle may not fall within the definition of an additional role requiring an employer’s consent. Developing outside interests is not necessarily a negative: it could of course bring financial benefits to the employee and also help develop their general skill set. However, there are potential risk areas to be alive to:

• A side-hustle is likely to be less visible than a second job and not something that an employee believes (possibly correctly) requires permission.

• Is this work being done outside of working hours? For staff working from home or on a hybrid basis, an employer may be concerned that an employee with a side hustle is not devoting their full time and attention to their primary role. Whilst this could be grounds for performance management, any monitoring would need to be carefully handled from a privacy and data protection perspective.

• Are these business interests in competition with the employer’s business, or does it raise concerns from a reputational perspective?

Will the cost-of-living crisis lead to employees returning to the office?

With energy prices rising and temperatures falling, employees may choose to return to the workplace and stop working remotely. Those with low commuting costs may particularly benefit from this, rather than heating their homes. Employers may also be looking at the question of office occupation on the basis that hybrid working is potentially inefficient for reducing office energy bills. For instance, some employers will be heating their premises five days a week when most employees are only in the office two or three days a week (or less). Some employers may therefore be considering restricting the number of days staff are in the office to save heating costs. Employers should be careful to consult with employees about any potential change, bearing in mind contractual provisions regarding employees’ place of work.

Also, employers may be mindful of the environmental impact of tweaking this balance between work and home. Although increased home working generally results in a smaller carbon footprint, as we explain here, that can be a complicated question.

Comment

As we have explored, there are a range of steps that employers might consider at the present time. Whatever actions are taken, however, an employer’s demonstration that it has acknowledged the current crisis and the impact it has on employees is key to keeping a positive and understanding ethos, retaining staff and even recruiting new employees.

Communication and flexibility are central to any response, including consulting on the options available for employees. Showing understanding and kindness to employees who are going through a difficult time is likely to be rewarded by loyalty, which could be a very valuable investment.