As we enter a new year, the cost of living crisis and the impact of the pandemic continues to be felt. Many businesses are experiencing challenging trading conditions, a competitive labour market and skills shortages. Meanwhile individuals are struggling financially with the record rise in inflation. In this article, we explore the issues likely to impact people planning in 2023, and identify ways in which employers can respond to these challenges.
Cost of living crisis
The CBI has predicted that the UK will fall into a year long recession in 2023. Tony Danker, CBI Director-General, said ‘Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment’. Inflation rates are at their highest in decades. Businesses and individuals are feeling the impact of significantly higher food, energy, transport and housing costs, with those on the lowest incomes hit the hardest. The Joseph Rowntree Foundation found a record number of people experiencing ‘in-work poverty’, with a wider range of the population resorting to food banks, including social workers, public sector workers and teachers.
The current cost of living crisis has increased the focus on employee financial well-being. In a survey by the CIPD, one in four employees said that money worries impact their ability to do their job, citing lost sleep, health problems, difficulty concentrating and/or making decisions, and spending time at work dealing with money problems. Unsurprisingly, the CIPD found that financial distress has a negative impact on attendance levels and performance. Businesses may consider providing the following financial support to employees:
Pay a fair and liveable wage
Paying employees a fair wage is an effective way of reducing the risk of in-work poverty. More than 11,000 businesses have voluntarily become Accredited Living Wage employers, including Ikea, Aviva, Nationwide and Nestle. Accredited employers commit to paying the Real Living Wage to all employees. The Real Living Wage is independently calculated based on the current cost of living and how much people should earn to meet everyday needs. The Real Living Wage can be compared to the government’s minimum wage rates as follows:
| National Minimum Wage | National Living Wage | Real Living Wage |
| £9.18 (rising to £10.18 in April) | £9.50 (rising to £10.42 in April) | £10.90 (£11.95 in London) |
| Applies to 21-22 year olds | Applies to 23+ year olds | Applies to 18+ year olds |
Further information on becoming an accredited employer is available at: www.livingwage.org.uk.
Financial education and debt management services
The CIPD recommends providing access to financial education and debt management services. Financial education may cover budgeting, saving and understanding credit. Debit management services help people who already struggling to manage and pay off debt. It can involve support in negotiating with creditors, as well as advice on financial planning.
Cost of living bonus
One off bonuses have become increasingly common in recent times as a way of supporting employees through the cost of living crisis. Businesses such as John Lewis, Lloyds Bank, Taylor Wimpey, Nationwide and Rolls Royce have paid their employees a discretionary bonus, ranging in value from £500-£2,000. Some employers are giving out meals and snacks to employees, for example John Lewis and Waitrose are proving free food.
Hardship Loans
Employers can loan employees up to £10,000 each year with no tax consequences. The employee should be asked to sign a loan agreement covering the terms of the repayment and authorising deduction from wages. Employers would be wise to cap any loans at an affordable amount (for example, one month’s pay) to reduce the risk of the employee leaving the business without repaying the loan.
While offering hardship loans can be a popular initiative, they are unlikely to solve an individual’s long term financial problems. We would always advise combining hardship loans with access to financial education and debt management services.
Other ways in which an employer may provide financial support include: a Help to Save Scheme; income protection insurance; life insurance; supporting career progression; and negotiating discounts with local businesses.
Recruitment challenges and skills shortages
During the pandemic the labour market was relatively static. As the CIPD commented, ‘In uncertain times, sticking with your current employer is a safer bet’. As the economy reopened, the labour market accelerated and job vacancies have remained at historically high levels ever since. In addition, record numbers of people are currently economically inactive due to long term sickness (2.5 million people in 2022 compared with 2 million in 2019) resulting in a shrinking pool of job candidates. Furthermore, many UK employers are experiencing skills shortages and talent gaps, caused by a combination of factors including Brexit, the pandemic and the current labour market.
While recent forecasts for 2023 indicate that the labour market may soften recruitment is likely to remain a priority for many employers for the foreseeable future.
Here are a number of ways in which businesses can respond to the competitive labour market:
Salary benchmarking exercise
Businesses should ensure that the salary package offered is competitive, to attract candidates and to reduce the risk of employees leaving to secure higher paid roles. This is particularly relevant in the current economic climate. A salary benchmarking exercise involves comparing the pay and benefits offered by the employer with the industry standard and with competitors.
The CIPD found that increasing pay was the most common response to resourcing challenges. Many employers also offer an enhanced benefits package as a way of attracting and retaining employees. Further information is available in ‘An employer’s guide to employee benefits’.
Flexible working
Flexible working is increasingly in demand, with employees prioritising work life balance. Offering flexibility ‘over where, when and the hours people work’ is an effective way of attracting candidates. As the CIPD states, ‘Creating quality work with lots of flexibility will help employers attract, and crucially retain employees’. In fact, the government has recently confirmed that the legal right to request flexible working will be strengthened with the removal of the 26 week qualifying period, meaning employees will soon be able to request flexible working from day 1.
Further information is available in ‘An employer’s guide to hybrid working’ and the CIPD’s ‘Flexible working practices’.
Sponsor licence to hire foreign workers
Given the challenging labour market and current skills shortages in the UK, businesses may decide to hire foreign workers to fill vacancies. As a result of Brexit, free movement ended for EU nationals. A new immigration system came into force in December 2020 replacing the previous immigration rules. Employers now need a sponsor licence to hire foreign workers (unless the worker has an existing right to work in the UK). Further information is available in ‘An employer’s guide to obtaining a sponsor licence’.
Succession planning and upskilling
A longer term solution to the recruitment challenges and skills shortages, is to create a succession plan and to upskill existing staff to fill vacancies. Succession planning involves identifying the future generation for key roles, and supporting them to develop the skills they need to progress. Creating an internal pipeline of talent undoubtedly requires an investment in learning and development. However, it also provides stability and reduces the high costs associated with turnover and recruitment. Upskilling refers to both formal training (such as an apprenticeship or graduate training programme) and informal training (such as on-the-job learning, development opportunities, secondments etc).
Retention of employees
Given the current challenges faced by UK businesses, retaining existing employees has never been more important. It makes sound business and financial sense to make the retention of staff a priority. It is far more efficient to retain a good employee, than to recruit, induct and train a new employee.
People leave employers for a range of different reasons. Sometimes it’s the attractiveness of another job. Often it’s because they dissatisfied in their current role, for example they may have a poor relationship with their line manager.
In order to improve retention, employers must first understand the unique causes of turnover in their organisation. There are a number of different ways in which an employer can gain an understanding:
Analysis of turnover data
Employers can analyse the turnover data for their organisation to understand which groups of employees are leaving, as this will impact the retention strategy needed. For example, the data may show that a high percentage of the people resigning are females with young children or employees with short service. The interventions needed will differ with each scenario.
Exit interviews
Exit interviews can be conducted with all employees that resign, to understand the reasons for the decision. Ideally exit interviews will be conducted by an independent third party, to encourage the employee to provide open and honest feedback.
Engagement surveys
Conducting an annual engagement survey will help to identify potential retention issues before they result in a resignation. Regular pulse surveys throughout the year will ensure the employee feedback remains contemporaneous, and enables employers to respond to issues quickly before they escalate. Further information is available in our guide ‘How to conduct an employee engagement survey’.
By understanding the reasons for turnover, employers can then develop a retention strategy that is tailored to the specific needs of their organisation and employees. Further information on developing a tailored retention strategy is available in our guide: An employer’s guide to employee retention.
Employee well-being
Employee well-being continues to be front of mind for many businesses as we start the new year. The pandemic and the cost of living crisis have raised awareness of employee health and well-being and the pivotal role employers can play in supporting employees. As the CIPD states ‘making sure people are happy, healthy and engaged is fundamental to sustainable business performance’. Investing in employee well-being leads to a range of benefits for individuals and employers, including increased performance, engagement and retention. Furthermore, demonstrating a commitment to the health and well-being of employees will undoubtedly support a company’s employee value proposition, increasing its competitiveness in a challenging labour market.
Many of the strategies discussed earlier in this article may have a positive impact on employee well-being including: offering financial support; flexible working; training and development; and engagement surveys. Furthermore, businesses may also decide to introduce an Employee Assistance Programme (EAP):
Employee Assistance Programme
An EAP is a company funded scheme that enables employees to access independent, professional support on a confidential basis, to help them deal with any personal or work-related problems that may be impacting their performance at work – such as financial issues, mental health or concerns about their employment. The professional support available will vary between providers, but may include: 24/7 helpline; counselling services; legal information; financial advice; trauma support; and child or elder health and support services.
Further information is available in our guides How to draft an employee wellbeing strategy for your organisation and An employer’s guide to employee assistance programmes.
What can we do to help?
If you would like advice on people planning for 2023, please contact our team on 0330 223 5253 or office@fitzgeraldhr.co.uk. We would be delighted to help you.
We hope you found this guide useful. You may also find the resources below helpful.
