5 Surprising Effects of Inflation on HR

Turn on the TV or click on to a news site and you’ll be inundated with reports about inflation.

And it’s already causing headaches for HR departments up and down the country.

Rocketing from practically zero during the first phase of the pandemic through to an eye-watering 9.1% now, inflation is forecast to get even higher. With energy bills, fuel bits and now, food bills, only increasing in price, there’s no getting away from the fact that, like an angry dog, inflation has its teeth firmly bit into the UK economy and it isn’t letting go anytime soon.

As a key department in an organisation, Human Resources is in a unique position to observe wider economic impacts on employees before they become apparent to senior managers in an organisation. Here are some of the most surprising effects that inflation is having on HR departments.

What is inflation?

We hear the word ‘inflation’ being thrown about a lot, but what does it actually mean?

Inflation is the economic term given to a rise in prices for goods and services and a corresponding reduction in the purchasing power of money. To put that simply, inflation is when the price of things goes up, causing your money to lose some of its value to buy things. This means that you’ll have to use more of it to purchase the same things you did previously.

Inflation can have positive and negative effects for the economy. When the rate of inflation is low and steady, some people view it as a positive that helps boost demand in the economy. When inflation is rapid and uncontrolled however it can end up causing massive damage.

It’s a complicated phenomenon that can affect many different parts of the economy on both a small-scale and a large scale (microeconomic and macroeconomic, if you want to use the economic terms). This means that it can have a huge range of effects on consumers, businesses and can cause real hardship.

HR is the department that bridges the distance between different groups in the company – from employees and senior management, through to external stakeholders and the board. As a result, Human Resources professionals are often the first people in the company to notice the effects of strong, external events – like inflation. With that in mind, here are some surprising effects that inflation is having on the world of Human Resources.

1.  Companies are needing to revise their benefits packages

As well as inflation making it more difficult for human resources and recruitment departments to attract the employees they need for roles, it’s also making it much more difficult for them to hold on to the employees they already have.

As a result of this, human resources departments are finding that there’s now real pressure on them to find ways to convince current employees to stay with the organisation and not to jump ship in favour of a new position with a higher salary and better conditions.

An obvious solution to this issue would be to just raise salaries and wages in line with the expectations of employees. For many organisations though, already operating with tight operating budgets and faced with an increasingly stormy economic horizon, it’s unlikely that they’ll have that much money to spare on higher salaries.

As a result, many human resources professionals are finding that they are turning their attention towards improving the current benefits package that they offer to their staff. After all, the benefits package is already in place – it’s just a case of improving and tweaking it slightly to match the new needs of employees.

Advice for how to respond: Revamp your benefits offering to employees. Consider what additional extras you could provide to employees, such as gym membership, cycle to work schemes, private health insurance etc. 

2. More employees access company mental health resources

When the economy suffers problems, the cost of living rises and people inevitably suffer, mental health problems inevitably rocket.

It’s concerning that some HR professionals are reporting seeing more of their employees turning to company-administered mental health resources to help them cope with the mental strain of living through one of the worst cost of living crisises in living memory.

Organisations have a statutory duty to look after the physical, and the mental health, of their employees, so it’s vital that employers take this issue seriously. Training mental health first-aiders is a good way to start building a base of support that can be accessed in the workplace itself. Investing in longer-term resources, like free counselling can also help to improve the overall mental wellbeing of your employees.

Advice for how to respond: Ensure that you have mental first-aiders trained and ready to help employees at need. Make sure that everyone in your workplace knows how to contact them. Make your workplace aware of the mental health support that your organisation offers.

3. Tightening budgets

The fact that inflation ultimately means higher prices for products and services doesn’t spell good news when it comes to organisational budgets.

HR departments are starting to see the effects of inflationary pressures in the wider economy drip through to their own departments, with senior management teams across the country warning of tightening budgets and the need to make efficiency savings going forward.

Human Resources departments should expect senior management (rightly or wrongly) to cut back on areas that are seen as more long term processes, like learning and development, in favour of more short-term term areas.

Advice for how to respond: Preemptively identify areas in your department where savings can be made in the event that your budget is reduced.

4. Harder to recruit new employees at current salary levels

Inflation describes a general rise in prices for goods and services. That general rise in prices also applies to labour power. When prices are higher, workers can demand higher wages and salaries for their labour, resulting in recruitment departments finding it harder to recruit at current salary and wage scales.

The effect of inflation on the cost of labour also means that managers have started to receive more requests for raises and pay rises from members of their teams, reflecting the wider economic backdrop of rising prices.

HR departments generally have some form of responsibility over recruitment in a company.

Simply log in to a platform like LinkedIn and you’ll find hordes of HR professionals and recruiters sharing horror stories about how difficult it is to attract the employees that they’re looking for with the salary ranges they have at their disposal.

More and more HR professionals on social media are highlighting the fact that it seems harder than ever before to recruit employees. As prices rise, and workers find that they need to spend more money to buy less, it’s certain that they will demand more in the way of salaries and remuneration.

There’s no getting away from the fact that this presents a very serious problem for HR and recruitment departments – one that won’t be going away anytime soon. In previous blogs, we’ve explored the ongoing labour shortage and the Great Resignation – two phenomena that show that employees are expecting higher pay for roles and that this is pretty much baked-into the labour market by now.

Advice for how to respond: Consider pushing for better salary packages to attract the top talent you need in your organisation. Consider granting requests for raises to stop talented employees at your organisation from going elsewhere.

5. More employee requests to work from home

One surprising phenomenon that Human Resources professionals on social media have been reporting is facing a deluge of employees requesting more flexible working arrangements. On the surface this might look like an odd coincidence and not directly related to inflation, but it’s actually deeply intertwined with it.

Rising fuel prices, combined with ongoing industrial action in the transport industry (itself partly caused by inflation and transport workers asking for their wages to meet the new cost of living) have made it more and more difficult for employees to commute to the office without incurring significant costs.

The experience of lockdowns where lots of us were forced to work from home showed us all that we could save thousands of pounds a year – not to mention hours of our lives – on commuting costs by adopting remote work. It’s no surprise that employees are asking to go back to this model to try and save money on something that sinks a significant amount of our salaries.

As a response to an unprecedented situation, it makes sense. Most organisations have some type of remote work system in place, as a hangover from the lockdowns of the pandemic, so it makes sense to dust these off and put them to use again (if you aren’t already using a hybrid work model, of course)

With the average price of petrol and diesel inching ever close to £2.00 a litre, urgent action on the part of the government and employers is needed if we are to prevent widespread poverty and destitution. Allowing remote working could be a practical way that employers and HR departments can step up to the challenge and help their employees – with very little negative benefit to organisation itself.

Advice for how to respond: Consider flexible working requests very carefully and don’t dismiss them without serious reasons about why there are not practical

Takeaway

Human Resources can often seem like the canary in the coal mine when it comes to wider problems in the economy. And now, when the economy is experiencing one of the worst rises in inflation in living memory, HR professionals are seeing the effects for themselves beginning to feed through in our own organisations. Don’t panic though. Bear our advice in mind and

you’ll be able to respond to the situation effectively.

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