Economic pressures increase human and organizational risks. Here’s how to help you.

The persistence of COVID-19, the ongoing war in Ukraine, rising energy costs and relentless consumer demand are all pushing prices up: they jumped 6.6% in the 12 months to March 2022, contributing to inflation that was more than three times the federal rate. Reserve target rate.

Additionally, employers are paying more for talent, triggering wage inflation and adding to existing pressure on compensation budgets. For example, 64% adjusted their budget upwards to account for merit (69%), cost of living (39%), general (30%) and step (13%) increases.

Take a measured response to a volatile change

Consumer prices rose 8.5% in March from a year earlier, while wages rose only 5.6%, eroding compensation gains for many employees. In addition, the Federal Reserve raised its benchmark interest rate by 0.5% in early May 2022, and some economists expect this hike, the largest in 20 years, to be only the first.5 It could slow the economy, trigger a recession, or prevent organizations from maintaining the revenue needed to cover higher salaries.

Employers should remember that wages are sticky, even if inflation is temporary. Inflationary salary increases are difficult to undo and have cost considerations. From an insurance perspective, compensation growth directly affects workers’ compensation premiums because they are based on payroll. The risk for the employer is an increase in pass-through costs.

Additionally, market changes happen quickly and online salary planning reports quickly become outdated. External advisors can provide current salary data, identify where the money is being spent, and offer advice on variable compensation, long-term incentives, bonus plans, and fair compensation approaches.

But matching salary increases to inflation may not be necessary if assets like work culture or professional development opportunities are important to employees. Efforts to effectively aggregate and communicate total rewards can also add value.

Minimize and proactively manage the effects of workers compensation claims

Labor shortages have far-reaching implications, such as a higher risk of injury on the job, especially for first-year employees and employees in overburdened industries. In manufacturing and warehousing, 42% of workers’ compensation claims were filed by first-year employees in 2021, up from 31% a decade earlier. In 2020, the pandemic and other serious safety and health risks put a strain on healthcare workers, contributing to a 249% increase in rates of occupational injuries and illnesses.

Workplace accidents have a ripple effect beyond the disabled employee. The loss is not limited to claims when the employer must fill positions in a difficult hiring environment while maintaining productivity.

Prepare for lagging health care costs that may be higher

While shortages in the health care delivery system drive up real-time costs for nurses and supplies, actual price increases are typically lagged. Some of this price difference will eventually be passed on to employers and consumers.

Health services, prices, reimbursement rates and employment contracts are fixed several years in advance. So even if inflation rates normalize, waves of higher passed-through costs could persist. If health care inflation catches up with inflation for all services, the 2022 profit pools for the health care sector could fall by around 12-24%.

Help employees make informed savings and spending decisions

During periods of inflation, employees may save less for college and retirement. It can also cause them to reduce their choices of voluntary employee-paid benefits, which can hurt their ability to meet their financial wellness goals.

It is important to help employees avoid compromising the value of their accident, life and critical illness protections in order to protect their finances.

Evaluate cost and flexibility when reviewing return-to-work policies

Employees return to the office when gas, transit and food prices rise. Market uncertainties have also increased insurance rates in several lines, including property and casualty.

Some employers are leveraging hybrid working as a cost-containment measure that enables flexible, goal-oriented office collaboration. Organizations need to invest in workforce development to ensure they share the same sense of culture and fairness, regardless of workplace.

Unpredictability has become predictable. But over time, people and organizations still show remarkable resilience. For total rewards, a data-driven strategic approach enables a holistic view of their success. Exploring and responding to the many reasons why their employees choose to work for them helps guide and support organizations – through and beyond tough times.

Mike Pesch is the CEO of US Brokerage Services at Gallagher

William Ziebell is the CEO of Benefits and Consulting Brokerage at Gallagher


Aubrey L. Morgan