The percentage of working-age adults in poverty is the highest it has been since records began, according to The Joseph Rowntree Foundation. Millions of households face an 80% energy bill rise from 1 October after the regulator Ofgem increased the cap on prices to £3,549 a year.
Some reports suggest that those hit the hardest in terms of the increased cost of living is Generation Z and millennials. Deloitte’s latest Gen Z and Millennial Survey found that 31% of Generation Z and 38% of millennials cited living costs as their greatest concern.
The increased cost of living has meant that, despite being employed, many people simply cannot afford their standard outgoings such as energy, housing and food prices.
Employers may feel they are doing all that is required of them, simply by keeping people employed (and for many businesses, especially those impacted by Covid, that is no mean feat). However, there is a danger in employers not recognising when employees are struggling and this may of course impact their work.
It is well documented that stress at home, whether it’s an unhappy relationship or an inability to pay household bills, can take a huge toll on person’s mental health. These types of pressures inevitably spill over into work, which can lead to absenteeism, poor work performance and other behavioural issues.
Pressures caused by financial worries have the potential to disrupt the working environment and relationships within teams. Managers should therefore be alert to changes in staff behaviour and, where necessary, discuss any issues with the individual, offering support where appropriate.
Several high-profile nation-wide employers have gone one step further than offering emotional support to staff, and have provided specific stipends for employees to ease their current financial hardships. For example, Lloyds bank gave all staff a £1,000 bonus to assist them with the increased cost of living.
Beyond the legal obligation to pay minimum wages under the National Minimum Wage Act 1998 (the National Living Wage is currently £17,400 per annum), there is no legal obligation for an employer to provide salary increases in line with the cost of living. That said, there are many good reasons for employers to go beyond the rudimentary legal requirements in this area. Not least because the standard minimum wage is nominal. The Centre for Research in Social Policy at Loughborough University found that a full-time job on the National Living Wage in 2021, did not guarantee the minimum acceptable standard of living expected in the UK.
Unlike many standard contracts, employment contracts do not have an RPI clause enabling inflation-based increases to salary. Many contracts do however contain a standard clause providing for an annual salary review which may, at the company’s discretion, lead to a salary increase. A failure to pay adequate wages can result in low employee morale, mental health difficulties and poor retention rates. In extreme cases may even result in a break down in trust and confidence, potentially entitling an employee to bring a constructive unfair dismissal claim.
So, what should employers be doing to address in-work poverty?
The Professional Body for Human Resources and People Development. (“CIPD”) has set out a ‘three-strand financial wellbeing policy’ for employers to consider as a way to lessen in-work poverty. The policy includes:
- Pay a fair and liveable wage
This asks that employers pay a wage that allows employees to meet the cost of living, thereby preserving their dignity and access to opportunities. It is for individual employers to evaluate pay and decide what is fair and “liveable”.
CIPD suggests that employers consider the following when calculating a liveable wage:
– Pay at, or above, the statutory Living Wage;
– Give workers the hours they want and need and remove barriers to working more hours if desired; and
– Offer occupational sick pay so that people can take time off when they need to, without risking their livelihood (Statutory Sick Pay is currently just £99.35 a week for up to 28 weeks).
- Provide financial wellbeing support
Employers can consider putting in place a programme of support which includes offering employees specific benefits that help their income go further.
In addition, employers can signpost financial advice and guidance and put provisions in place to create a safe place for employees to talk about money worries. It should be noted however, that there is no legal duty to inform an employee of choices which would be in their best financial interest or to act as an “employee’s financial adviser” (Crossley v Faithful and Gould Holdings Limited  EWCA Civ 293).
- Support in-work progression
Employers can help foster a culture of lifelong learning and help to maximise employees’ earning potential by enabling them to develop so that they can take on higher-paid roles.
Employers should seek to create an inclusive flexible working culture, that offers development opportunities to all, whatever their role and whether they work flexibly or not. In addition, employers can install a clear pay structure that will show routes to progression, and invest in developing managers so that they can support employees in their career progression.
As an employment lawyer, my role is about far more than fighting cases in the tribunal. It’s a much bigger picture – one that involves helping employer clients create a good working environment and implement the right processes and practices. In many cases, when an inclusive and supportive setting is created, the risk of employees becoming litigious greatly reduces.
In my view, factoring financial wellbeing into people management is simply the next step to take to keep up with the changing economic landscape.
To speak to us about your employment issues, whether to do with strategic business decisions or a particular issue involving an employee, get in touch with Kate Brown or another member of our Employment team on 03702 188 990.