How to plan for what lies ahead.
A tight labor market and inflation have significantly impacted peopleâs buying power, their salary needs, and the ability of small business owners to hire and retain workers over the last year. This will likely continue in 2023 and beyond.
This article will explore how low unemployment levels and near-record inflation rates are impacting workers and business owners and what businesses can do to keep their employees happy so they can hire and retain top talent now, in 2023, and beyond.
Inflation: Its impact on workers
Inflation raises prices, which lowers peopleâs purchasing power. If wage increases and wage growth doesnât keep up, workers become dissatisfied that they canât pay their bills and may look for an employer who will pay them more. Not only does inflation increase the cost of living for your workers but it also lowers the value of their retirement accounts and other savings. On top of this, it makes it more expensive to borrow because of higher interest rates. If people borrow to cover higher prices, they could end up paying for it for years or decades to come.
High employment and inflation: What they all mean for business owners
At the same time, small businesses are finding it challenging to hire employees because of the current labor shortage, inflation is impacting workers, causing them to demand higher wages.
This spiral is making it hard for small business owners to maintain their current level of business, much less grow. This is particularly frustrating because consumer activity is high right now because of long-term supply chain problems, but employers canât hire enough people to meet the pent-up demand. At the same time, employee retention is becoming a big issue. Losing just a single trained and experienced worker can be more devastating than not being able to hire someone new.
According to a recent Wall Street Journal survey, almost two out of three (63 percent) small business owners say that hiring challenges are impacting their ability to operate at total capacity. This forces small business owners to increase salaries, offer signing bonuses, enhance their benefits packages, and more. No one can hire new people at their state minimum wage anymore. Add to this the increased cost of recruiting in the tight job market. Business owners must advertise more on LinkedIn and other channels and put out additional effort (traveling to and spending time at job fairs) to find and hire good candidates. This is making the cost of doing business higher, and many small operations are concerned about passing on these costs to their customers. This could result in them losing business rather than increasing it.
Another uncertainty company owners are dealing with is whether the economy will continue to operate at its current red-hot pace or if it could end up in a recession. Or if the increases the economists at the Federal Reserve are making to interest rates will cool things to more typical economic conditions. If thatâs the case, they may be forced to eliminate the recently hired workers.
One way to provide pay raises while avoiding inflated prices is to offer employees performance-based incentives. They earn more if they make, sell, or deliver more. This helps prevent the adverse inflationary risk of producing the same amount but paying more to do it.
Another creative option being used by small businesses is to pay part of an employeeâs services using Bitcoin with the promise of the value of it going up in the future.
The creative pay methods help business owners avoid more costly hiring sweeteners, such as adding retirement plans or healthcare insurance to their employment packages. Not only are these benefits costly to fund, but they can also be expensive to administer. And many younger people may not value them enough to work for a company because of them.
Still, businesses must balance being frugal in their hiring and salary increases and the impact not bringing on new workers and remaining them could have on their bottom lines. This can be a more significant issue with service businesses than those selling products. Consumers have gotten used to post-pandemic product shortages and price increases. The same is not valid for service appointments. If they canât get their hair styled, car repaired, or legal issues dealt with when and where they want, prospective clients will likely move on to a provider who can meet their needs on a timely basis. This loss of customers could cost more than an increase in labor costs and overall salary budgets.
This isnât the only issue service businesses face. If customers are unhappy with their experience, they could slam the company online, giving it bad ratings and reviews and causing further harm. If workers are forced to deal with unhappy customers too often, theyâll be more likely to move on to a better competitor, making the employment situation worse.
What small business owners can do to keep employees happy
Jacking up salaries isnât the only way to attract top talent and retain it. Sometimes you have to be a little creative. Here are some things you can consider:
More frequent job reviews and raises
Annual or semi-annual employment reviews and salary adjustments have been the standard. However, annual minimum wage increases aren’t adequate. During this period of high inflation, many employers are offering them more often. And while they may not always raise wage rates for a quarterly (or more frequent) review process, it helps them judge whether employees are content with their current work and salary in real-time, providing more chances to correct things before they get so bad people leave for greener pastures. It also allows employers to keep the pulse of what workers are thinking and what the expectations of new hires could be now and over the next year.
Get creative with benefits
Benefits can go beyond the costly and often unappreciated 401(k) or health insurance. You may be able to work with other business owners in your area to offer discounted gym memberships, childcare support, or training that can help workers improve their skills and do their jobs better.
Offer flexible work options
For some businesses like stores and service providers, employees must work in a shop, office, or business location. However, the coronavirus pandemic taught us that remote work is a viable option for many businesses and some workers prefer it. If working from home is an option for your business, consider extending it to more employees. Not only might they prefer it because itâs easier and saves on childcare costs, but it can also help you reduce the physical footprint of your business, reducing rent and other space-related expenses.
Hire a business consultant
If youâve been in operation for a long time, you may no longer be able to view your company objectively. Do you really need to hire more workers at higher pay, or are there ways to work better and more efficiently with fewer people who earn less? It might be worth hiring an experienced business consultant to review your operation before hiring new employees. You may find that you could make a lot more while spending less on personnel.
If your business is in a high-salary location like Los Angeles, California, you might want to consider whether it makes sense to hire experienced people located in other parts of the country or the globe. In most cases, you will not even need to meet local minimum wage requirements, much less exceed them. You can explore your options by working through online employment services like Upwork or Fiverr. You may find that you can save a lot by expanding where your workers are located.
Permanent full-time versus temporary part-time employment
Ask yourself: Is it necessary for you to hire forty-hour-a-week permanent workers, or could part-time, temporary ones do? Of course, if a position is central to your operation, you want someone whoâs in it with you over the long haul. However, most jobs arenât as necessary to the success of a business. If you need additional sales, service, or administrative support, figure out if it could be handled by temporary, short-term talent. It could save you money now and simplify eliminating workers if the economy cools down and you no longer need them.
Increase employee pay through one-time bonuses
If youâre concerned about raising hourly pay permanently and not being able to sustain it over the long term, consider helping your employees during these challenging times with bonus payments. It will help them with their immediate financial stress caused by inflation. Still, you wonât have to sustain high salaries when unemployment returns to normal levels, and inflation goes down.
Enhance your benefits
If you already offer your employees benefits, consider making one-time enhancements to help your company stay attractive to them. Pay more of their healthcare insurance costs or boost your retirement plan match. These minor benefit improvements may help prevent them from moving to other employers.
Help with commuting costs
Although gas prices have been falling lately, theyâre still at or near record highs in many areas. Offer to cover some of your workerâs commuting costs or enroll in a rapid transit discount program if your community offers one. It could be a good and relatively cost-effective way to help your workers manage through one of their most significant financial stresses.
Hire a human resource consultant
If youâve been handling hiring, payroll, and other human resource issues on your own, now could be an excellent time to hire a consultant or service to help you out. One example is Willis Towers Watson (WTW). The extra expense could save you more time to focus on critical business matters while helping you hire the right people and compensate them fairly.
Communicate complete compensation
Itâs easy for people to focus exclusively on their hourly pay or annual compensation amount. Itâs easy to forget that in most cases, pay is only a part of compensation. When you conduct annual (or more frequent) reviews, ensure that you put in writing everything you pay to your workers, including benefits, bonuses, insurance, commuting costs, and more. Do the same when you make offers to new employees. It will help demonstrate the value of your complete compensation package and make it seem more generous and attractive to them.
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