Economic pressures heighten people and organizational risks. Here’s how to help.

How to respond to volatile change while helping employees make informed spending and saving decisions.

how to help employees with financial risk

The persistence of COVID-19, the ongoing war in Ukraine, rising energy costs and unrelenting consumer demand are all pushing up prices: they surged 6.6% during the 12 months ending in March 2022, contributing to inflation that was more than three times the Federal Reserve’s target rate.

In addition, employers are paying more for talent, triggering wage inflation and adding to the existing strain on compensation budgets. For instance, 64% adjusted their budgets upward to accommodate merit (69%), cost-of-living (39%), general (30%) and step (13%) increases.

Taking a measured response to volatile change

Consumer prices increased by 8.5% in March from the prior year while wages grew by only 5.6%, eroding compensation gains for many employees. Also, the Federal Reserve raised its benchmark interest rate by 0.5% in early May 2022, and some economists expect this hike, the biggest in 20 years, is only the first.5 This could slow the economy, trigger a recession or inhibit organizations from sustaining the revenue necessary to cover higher wages.

Employers should remember wages are sticky, even if inflation is temporary. Inflationary pay increases are difficult to rescind and have cost considerations. From an insurance standpoint, compensation growth directly affects workers’ compensation premiums because they’re based on payroll. The risk to the employer is an increase in pass-through costs.

Further, market changes happen fast, and online salary planning reports quickly become outdated. External advisors can provide current salary data, identify where money is spent and offer guidance on variable pay, long-term incentives, bonus plans and equitable compensation approaches.

But matching salary increases to inflation may not be necessary if assets like work culture or professional development opportunities are important to employees. Efforts to package and communicate total rewards effectively can also add value.

Proactively minimizing and managing the effects of workers’ compensation claims

Worker shortages have far-reaching implications like higher risk of workplace injury, especially for first-year employees and employees in overburdened industries. Within the manufacturing and warehousing sectors, 42% of workers’ compensation claims were filed by first-year employees in 2021 compared to 31% a decade earlier. In 2020, the pandemic and other serious safety and health hazards put an enormous strain on healthcare workers, contributing to a 249% rise in workplace injury and illness rates.

Workers’ compensation injuries have a ripple effect beyond the incapacitated employee. Loss isn’t restricted to claims when the employer must backfill jobs in a tough hiring environment while maintaining productivity.

Preparing for lagging healthcare costs that may be higher

While healthcare delivery system shortages raise costs in real time for nurses and supplies, actual price increases typically lag. Some of that difference in pricing will eventually be passed on to employers and consumers.

Healthcare services, prices, reimbursement rates and labor contracts are set several years in advance. So even if inflation rates normalize, waves of higher pass-through costs may still persist. If healthcare inflation catches up to inflation for overall services, the 2022 profit pools for the healthcare industry could drop about 12%–24%.

Helping employees make informed saving and spending decisions

During periods of inflation, employees may save less for higher education and retirement. It may also prompt them to reduce their employee-paid voluntary benefit elections, which can undermine their ability to achieve financial wellbeing goals.

It’s important to help employees avoid compromising the value of their accident, life and critical illness protections to safeguard their finances.

Weighing cost and flexibility when considering return-to-workplace policies

Employees are returning to the office when prices for gas, transit and food are rising. Market uncertainties have also increased insurance rates across several lines, including property and liability.

Some employers are leveraging hybrid work as a cost containment measure that enables flexible, purpose-driven office collaboration. Organizations should invest in nurturing workforces to help ensure they share the same sense of culture and equity regardless of work location.

Unpredictability has become predictable. But as time goes on, people and organizations still show remarkable resiliency. For total rewards, a strategic, data-driven approach allows a holistic view into their success. Exploring and responding to the many reasons why their employees choose to work for them helps guide and sustain organizations — through and beyond tough times.

Mike Pesch is the CEO of U.S. Brokerage Services at Gallagher

William Ziebell is the CEO of employee benefits & consulting brokerage at Gallagher

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