Many of us are feeling the pinch during the current cost of living crisis. It’s hard to ignore the price increase of everyday items, and as a business owner you’re mindful of how you can support your team through it. The fact is, businesses are also bearing the brunt at this time. The rising costs of labour, services, materials and energy are something business owners are having to grapple with, meaning it’s not always possible to afford salary increases for your team – as much as you’d love to. So how do you go about managing salaries?
Good news: there are many ways you can help your team cope with the increased cost of living without pushing up the cost of salaries (which is then very difficult to bring back down again). Getting creative with staff incentives will protect the financial health and growth of your business, while also giving your team the support they need during this time.
Low and no-cost benefits can have a significant impact
Supporting your employees doesn’t necessarily have to pile onto your existing costs. Small adjustments on the employer’s side can mean big savings for staff. For example:
- Offering hybrid working which will reduce your team’s commuting costs (and can even increase productivity!)
- Signposting wellbeing initiatives such as employee assistance programmes
- Providing financial advice to improve financial literacy across your staff
It’s hard to overstate the importance of financial literacy during the crisis. Research has shown that almost half of all employed workers in the UK don’t know if they’re eligible for a tax refund. Providing your team with solid financial advice will ensure they’re getting back as much as possible at a time when every pound adds up.
Trivial benefits are another way for business owners to reward staff without feeling it in their pockets. The HMRC Trivial Benefits exemption allows employers to reward their staff without having to pay tax, if all of the following apply:
- The benefit costs £50 or less to provide
- It isn’t cash or a cash voucher
- It isn’t a reward for their work or performance
- It isn’t in the terms of the contract
While trivial benefits don’t translate to financial support as much as other benefits, taking advantage of these tax-exempt incentives can be a powerful way to boost morale and reward your staff during these tough times.
Reviews to contractual terms provide added peace of mind and stability
Giving your team that extra security can come in the form of non-wage elements of pay and reward, often by adjusting or adding to terms already in their contract. While these come with a financial cost, they won’t push up salaries. For example:
- Guaranteeing team members on part-time contracts a minimum number of hours per month
- Establishing employee benefits packages including income protection, personal medical insurance and increased pension contributions
Don’t panic and raise salaries just because you think you may lose staff
It might be tempting to suddenly raise salaries to ensure you retain staff, but consider the longer-term implications on your business. Conducting a salary and reward benchmarking exercise will make sure your wage payout is fair and in line with market rates.
What kind of opportunities do your employees have for promotion within your business? Investing in the training and development of your existing staff will help them progress to a greater salary band, all while growing your business. A win-win!
Bonus and profit-sharing schemes are another way to increase take-home pay for team members while ensuring your business’s development. Consider which type of bonus would have the greatest impact: performance bonuses, retention bonuses, or profit sharing. Bear in mind bonuses are taxable, and many businesses consider it more beneficial for both the employer and employee to find a tax-free alternative to support employees.
Discuss with your accountant whether your business can afford pay rises
Making sure you have a clear idea of what your business can and can’t afford is the first step when managing salaries and planning how to care for your team during the cost of living crisis. Establish with your accountant how any salary increases would affect your key numbers, and explore how non-wage-related benefits could support your employees.
At Starfish, taking care of those we work with is something we’re firm believers in. We think accountants should be more than just the “numbers person”. We’re the partner in your corner, working alongside you to give you the support you need when running a business so you’re not carrying the load alone. If you’re keen to help your team through this tough time, schedule a chat. We’ll give you guidance and clarity on the best ways to support your staff while making sure your business stays fighting-fit.