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Are we entitled to a pay rise to cope with the rising cost of living? We ask one of the most successful law firms in Newcastle, Samuel Phillips Law

Martha Craven, Employment Solicitor at Samuel Phillips Law, breaks down what the rising cost of living could mean for workers and employers.

Written by Samuel Phillips Law
Published 19.05.2022

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It has now been well documented that our cost of living is increasing significantly.

Although the crisis has been ongoing since last year, recent figures showing that inflation hit a 40-year high of 9% in April indicate that things don’t look likely to improve any time soon, either.

Why? Well, in addition to steadily rising prices of everyday goods, a number of sudden changes came into playfrom April 2022, including:

  • Ofgem increasing the energy price cap by 54% (leading to a nearly £700 annual rise in bills for those who pay by direct debit)
  • A National Insurance increase of 10%
  • Council tax rising by around 3.5%
  • An average rise in water bills of 1.7%
  • And a freeze on the income tax threshold, meaning a real cut in take-home earnings for most of us.

As well as the global effects of the Covid pandemic, the war in Ukraine has exacerbated rising costs, with supply chains interrupted and western countries keen to immediately reduce their exports of oil and gas from Russia.

What that means for us here in the North East? In short, that we’re taking home less of our pay and spending around 9% more on everyday essentials.

This culmination of overnight changes is likely to result in a ‘living standards catastrophe’, economic experts have warned, with researchers expecting Britain to experience the worst fall in living standards since the 1950s.

So, what obligations are there on the part of our employers to help us cope?

As we receive limited support from the government, should we take the issue up directly with those filling our pay packets every month? And if we did, do we actually have a legal leg to stand on? If we can’t demand a pay increase to combat the rising cost of living, what support can we seek?

Luckily, we know a gal. An exceptional Employment Solicitor in one of the most successful law firms in Newcastle upon Tyne, actually – Martha Craven from Samuel Phillips Law. Here, she shares her expert advice…

Are there any obligations on the part of our employers to offer pay increases to help us manage the rising cost of living?

Unfortunately, unless there is specific provision for pay rises in the contract of employment, there are no legal obligations on employers to offer pay rises to help employees combat this issue. Typically, any contractual obligation on employers is limited to an annual pay review (and this doesn’t automatically lead to a pay rise).

That being said, employers may still wish to consider what support they can offer employees for the following reasons:

1. Anxiety about money troubles is likely to lead to increased levels of stress-related sickness absence – which may cost the business in terms of productivity.

2. Equally, in terms of employee engagement, a failure to offer a pay rise at a time when employees are facing immense, personal financial pressure may lead to stressed and dis-engaged employees – which (again) may cost the business in terms of productivity.

3. The pandemic encouraged a lot of employees to re-consider their working lives and seek fresh employment. This trend – which some are calling the ‘Great Resignation’ – appears to be continuing in 2022. In short, employees are voting with their feet more than ever. A failure to award a pay rise may well lead to losing key talent. This may impact productivity, but also succession planning and long-term strategy. In addition, this will likely lead to recruitment costs, particularly in such a candidate-driven environment.

What can employers do?

If the business is in a position to offer pay rises, it is extremely important that this is properly planned and executed.

Offering permanent pay increases is a big commitment from an employer.

It may be more appropriate to offer a one-off discretionary bonus than to increase pay permanently, particularly when lots of sectors are still struggling with supply chain issues.

In addition, employers need to ensure that any pay increase or bonus offered is done so fairly. Offering pay rises to select groups and not others may adversely affect morale and employee engagement, as well as potentially leading to equal pay/discrimination claims.

It’s also really important to understand that the cost-of-living crisis also affects employers. Therefore, while some employers may be in a position to increase wages or offer bonuses, this will not be the case for all.

For employers who can’t responsibly increase wages, what alternatives may still help their employees?  

1. Getting the basics right, and ensure payroll is completed on time. Any issues or delays should be communicated to staff clearly and sensitively.

2. Remind employees of the mental health support on offer. This may be as part of an Employee Assistance Programme (EAP), or via Mental Health First Aiders within the organisation itself. Even if the business does not have any formal mechanisms in place specifically for mental health issues, employers may wish to consider issuing communication to employees making it clear that the business values wellbeing and encouraging employees to speak with management if they‘re struggling. Employers may also wish to take steps to ensure that managers are trained and prepared to deal with employees facing financial pressures.

3. Highlight any discounts on offer. Reducing costs of retailers and gyms adds up for employees, so it’s worth reminding your employees how they can access these discounts.

4. Consider implementing an Employee Assistance Programme (EAP). EAPs are often provided by a third-party supplier, but the business can determine what support is on offer based upon what is likely to be most useful to employees. EAPs can include: debt management support, counselling services and even financial planning advice. Employers should seek full advice before implementing an EAP. If the business already has an EAP, then make sure employees know how to access this support.

5. Signpost employees to appropriate external support, such as the Money Advice Service.

6. Consider implementing a Salary Sacrifice Scheme.
Typically, salary sacrifice schemes allow employees to exchange part of their salary for various benefits, such as childcare vouchers, company cars, or cycle-to-work incentives. The employee receives less salary, but they pay less tax and National Insurance Contributions.

These schemes may help employees get useful benefits, while minimising the increased National Insurance Contributions which came into effect in April 2022.

Employers should note, however, that implementing this type of scheme can be complex, and full advice should be sought. In addition, such arrangements will usually require an amendment to the contract of employment and therefore employees will need to be consulted and agree to the change.

7. Consider offering more flexible forms of working, if appropriate. Working from home may help mitigate high costs associated with a commute.
Equally, being more flexible regarding working hours may help those employees with children manage childcare costs.

What if I’m an employer who can’t afford to offer pay increases and there are no obligations to do so, but some of my staff are trying to escalate the issue – what kind of legal support can I find? 

This is more about communication than the law.

If there is no contractual provision to offer a pay rise, then there is no obligation to do so. Ultimately, a responsible employer cannot offer pay rises if it cannot afford them or it would risk jeopardising the long-term success and survival of the business.

What matters is communicating this clearly and sensitively to employees.

If we have been offered a pay increase by our employer specifically in relation to the rising cost of living, without it being specified as a ‘promotion’, should we expect to take on more responsibilities? 

Any changes to an employment contract should be made clear for both parties. Therefore, an employer should not assume that it can assign extra hours or duties in return for a pay rise unless this has been clearly set out to the employee and agreed.

That being said, employment contracts often contain clauses which state that the employee will undertake whatever duties are required to fulfil their role. Similarly, for salaried positions in particular, there is often a similar provision requiring the employee to undertake whatever hours necessary to fulfil their role. As such, in practice, employees who accept a pay rise do need to be alive to the fact that the employer may seek to leverage this in future.

If offered a pay rise, employees may wish to clarify that the purpose of the pay rise is solely to assist with the rise in living costs, and that no other terms and conditions of employment are affected.

If you’d like to find out more about the legalities surrounding the rising cost of living or implementing any of the proposed assistance schemes in this article, Samuel Phillips can offer initial advice in the strictest of confidence. For more information, visit their website or Facebook page or call the firm on 0191 232 8451.

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