Managing staffing costs when inflation is running high

It’s hard to escape the mention of inflation in 2022, and as the cost of living crisis persists, you might find your existing team and new recruits asking for higher salaries.

But, with your business’s needs to think about as well as those of your team, you’ll need balance as well as sensitivity. Here’s a look at some things to consider.

An accounting rule of thumb

A good place to start is to consider what’s sustainable for your business. For an agency a good accounting rule of thumb is that your staff costs should be between 45-55% of your turnover. What does it look like for you right now?

If it’s at the lower end of this range, you may feel more confident that you’re in a position to consider salary rises – especially if you risk being uncompetitive if you don’t respond. If, on the other hand, your wage to turnover ratio is already near 55%, you’ll have less room for manoeuvre.

Accepting pay rises

If you’ve looked at the numbers and think you can support pay rises, the next thing to do is plan how to go about it. A big part of this is to work out which roles and team members are the most valuable, and make sure they’re rewarded properly.

Larger businesses normally have a structured annual appraisal system and/or regimented pay bands that provide limits to what people at certain levels can be paid.

You might have more flexibility in your business, but you don’t want a free for all. Think about how you can give pay rises fairly, maybe based on a fixed percentage around annual reviews for instance, or framed as a one-off response to the current cost of living crisis.

Most importantly, make sure you have a sound rationale for all pay rises. If you’re giving your designers a blanket uplift, for example, but not your project managers or PR professionals, you’ll need to be able to explain why.

Rejecting pay rises

Declining pay rises is hard to do. You need to be sensitive, and clear about the rationale. Discuss what needs to happen for them to achieve a pay rise in the future, whether that’s increased company turnover, or improved performance from them.

Keep in mind that rejecting pay rises may ultimately put you in a worse financial position if that person leaves, as lots of agencies are facing staffing difficulties at the moment (see our blog “Where have all my staff gone?”).

If you don’t listen to your employees’ needs, they might look elsewhere for that payrise – leaving you facing recruitment expenditure that exceeds what the pay rise would have cost.

There may be other ways to keep your employees on board and support them, even without a pay rise:

• Devising a compelling employee benefits package can prove a cost-effective way to boost overall remuneration. For example, health cash plans are very affordable for most employers and can save staff hundreds of pounds on things like dental treatment and eye care.
• Alternatively, shopping discount cards, again cost effective to employers, offer employees great savings at many of their favourite shops.
• Flexibility. Hybrid working is becoming the norm, and your team will appreciate a genuinely flexible approach to when and where they do their work.

Help with budgeting

Staff are, for many businesses, the biggest cost and the biggest asset. If you would like more bespoke help planning current and future staffing budgets, please get in touch with our experts.