Help Employees Beat Inflation with an Average Yearly Raise

As a business owner, you see your cost of goods increase on a regular basis. Your employees face inflation just as you do. In consideration of your employees, help them beat inflation with an average yearly raise.

Many Small Businesses Miss the Mark

My husband has always worked for small businesses. On the other hand, I’ve always worked for corporations or instructional institutes. So it came as a shock to me to find many small businesses miss the mark when it comes to structure, especially when it comes to their payment system. As I mentioned in another post, it’s not uncommon for companies to lead aggressively with raises then somehow “forget” to give raises for years. An overabundance of raises followed by a dead zone, can be confusing for employees and can set false expectations.

Historical Inflation Rate

Before we talk about raises, let’s touch on inflation rates first. First of all, it happens pretty much every year. Since the turn of the century, we’ve had one year without inflation, and that was during the Great Recession. Excluding 2009 and this year (0.1% inflation), the rates have ranged from 1.5% to 3.4% over the past 15 years.2000 - 2016 Inflation Chart

You see the effects of inflation when you purchase goods from your distributors and services for other businesses. In turn, many businesses (including yours) may raise prices in order to stay profitable.

Effect on Employees

Inflation typically causes prices to rise across the board as businesses attempt to keep or increase their profit margins. Employees who do not receive raises to keep up with the cost of living, find their dollars stretch less and less.

2010 - 2015 InflationLet’s put this into perspective with real numbers. If you paid your employee $40,000 in 2010, in order to keep up with inflation, they would need to make about $43,486 in 2015. For most households, $3,500 is a nice chunk of change.

So my question to you Mr./Mrs. Business Owner. If you had to cut about $3,500 from your personal budget, where would you cut it? From your retirement? Put the deficit on a credit card? Borrow money from friends and family?

Though 5 years without a raise is extreme, these are the types of questions your employees face when you fail to account for the cost of living when it comes to wages.

Employees are one of the most valuable resources a company has. Why would you repay your employees’ hard work with financial hardship?

Average Yearly Raise

According to Tower Watson (a company that’s conducted yearly surveys on raises), the average yearly raise for employees is about 3%. When taking into consideration that inflation rates have risen as high as 3.4% percent in the last decade or so, the average yearly raise not only staves off the effects of inflation, but even allows employees to beat inflation in the long run.

Tower Watson has also seen an increase in bonuses given to employees. Please note that bonuses are in addition to raises. In fact, 80 of exempt and 87% non-exempt employees in the survey receive bonuses on top of their base wages.

Cost-of-Living Raises Aren’t Incentives

Newspaper InflationKeep in mind, helping employees keep up with inflation by offering cost of living raises, doesn’t reward them for a job well done. Really, it only allows them to continue to maintain their standard of living, rather than having to downgrade because there dollars are worth less. Think of the cost-of-living raise as a to maintain an employee’s base pay.

Bonuses, on the other hand, can be incentives. They’re rewards for a job well done, a great way to show your team excelled as a group, or even to recognize employees for going above and beyond their job expectations.

Rewarding For Your Success

The bottom line… your business should be budgeted to pay your employees at a minimum a cost-of-living raise. Even better if you budget for bonuses to reward employees and teams who deserve an extra pat on the back.

Here’s the thing… your business should progressively be doing better and better each year. At a minimum it should at least be keeping up with the cost of inflation. If your business is not and the country isn’t in some kind of recession, you might want to revisit and revise your business strategy. If nothing else, pull out your business plan and see were your company has deviated.

It’s unfortunate when a company doesn’t take time to monetarily recognize the value of an employee’s work by at least helping them fight inflation.