Navigating the cost of living crisis: a guide for HR
Key Points
Inaction fuels disengagement, talent flight, and damages your company culture.
Use real-time data to make informed investment decisions, not desperate gambles.
Target pay adjustments and alternative support schemes that have measurable impact.
Turn this current crisis into an opportunity to solidify your strategic role within the business
Picture this: A dedicated person, skilled and valued within your organisation, faces an impossible choice.
Childcare payments or putting money aside for their future? Rising energy prices or the weekly food costs? Dip into the emergency fund or reduce household budgets?
These daily battles don't just hurt pockets – they drain motivation, degrade mental health, and create a nagging question: Does my company even understand what it's like?
This isn't hypothetical.
It echoes throughout breakrooms, online forums, and quiet conversations before employees hand in their notice. This crisis hits morale harder than it does spreadsheet totals. And inaction isn't sustainable because it erodes what matters most: trust and loyalty.
So, HR leaders face a unique challenge in these tough times. And the actions you take right now will define the kind of company you are when these tough times finally pass.
Let’s explore this essential area.
The dangers of doing nothing
The temptation to 'wait and see' runs deep, especially in uncertain times. After all, budgets are already stretched, and knee-jerk reactions can backfire.
However, as standards of living drop, inaction can carry more hidden costs than any immediate financial outlay. It’s key that you foster an environment in which your people feel safe in order to get the best of out of them.
If you don't, not only will amplify the already challenging times employees face, you risk stagnating the growth of your organisation.
Here's why doing nothing isn't an option:
Damage to Your Employer Brand
Right now, news headlines paint a stark narrative about people struggling with price increases and insensitive corporations. Your company might have an outstanding reputation, but this crisis is forcing millions of people to compare promises to actual money in the bank. Falling behind market rates sends a silent message - your organisation is stuck in the past, unwilling to adapt and support its people when it matters most.
“An 80p per hour loss in pay results in a 28% increase in turnover rates.”
The Rise of Quiet Quitting
When employees start 'acting their wage' – doing the bare minimum and putting all their energy into securing a role elsewhere – that's harder to quantify than turnover statistics. However, the erosion of enthusiasm, the disappearance of discretionary effort, and the infectious spread of cynicism... those cost far more in lost productivity than proactive salary reviews. And with the loss of a positive work environment, even those that stay become less than they could be.
“Over 55 million discretionary hours were lost in UK labour market per year between 2019-2022”
A Divided Culture
"Them vs. Us" attitudes thrive in crisis. If executive pay remains untouched while staff struggle with money, even modest adjustments later won't repair that crack in trust. Inaction fuels the belief that those making strategic decisions are disconnected from the daily burdens borne by their team. In tough economic periods, unity is essential; inaction amplifies internal divisions.
“Only 25% of UK workers have ‘full trust’ in their company leadership.”
Proactive Means Data-Driven
Ultimately, the "wait and see" approach relies on outdated compensation models tied to annual figures and industry averages. These numbers can look starkly different by the time your next review rolls around. Proactivity means shifting away from that rear-view mirror approach so you can make the right investment in your people.
Real-Time Market Insights: Salary benchmark surveys that are months old don't cut it. Look for tools and sources that provide regular updates on wage shifts within your sector and comparable markets. Pay attention to in-demand skills – poaching competitors isn't viable when they can counter-offer salaries you haven't yet factored in.
Internal Equity Analysis: Market value is only half the picture. Revisit how your existing salary banding stacks up. Compression at certain levels is demoralising for long-tenured employees and leaves you open to losing them over minor offers elsewhere. A fair structure needs constant recalibration, not just one-off fixes.
Open Communication Channels: Your internal experts might be underutilised. Line managers are usually the first to hear rumblings about low morale linked to salaries or employees looking elsewhere. Build data collection into regular check-ins to get ahead of attrition trends.
The path forward isn't just about reacting, but about actively listening, evolving, and making tough decisions based on informed, current data. Remember, employees compare more than salaries – they compare how they're being treated during difficult times.
This can be your moment to stand out, not just follow the pack.
Options Within Your Control
So what options do you have?
Sweeping, across-the-board raises might be financially impossible with the funds you have, but targeted contributions still resonate. It shows an awareness of diverse needs while demonstrating a strategic ability to keep your budget under control.
Here's where to focus:
Targeted Pay Adjustments
Safeguarding the Most Vulnerable: Prioritise those closest to the poverty line. Small spending adjustments on the lower end of your pay scale have an outsized impact on quality of life. Even if it doesn't solve all their money worries, it builds goodwill and minimises the risk of losing skilled people over small offers from less ethical competitors.
Rewarding Critical Skills: If market data signals your top performers in certain roles are dangerously underpaid, targeted increases reduce poaching risk. Make this data-driven, not based on favouritism, to preserve internal fairness.
Performance PLUS Potential: Annual reviews often fixate on past achievements. Factor in those exceeding expectations with clear growth trajectories; these are usually the people your competitors try to lure away. Invest money in future leaders now to avoid costly replacement recruitment and secure your organisations resilience.
Our PAYreview software can help you make the targeted pay adjustments you need to retain your talent
Alternative Support Schemes:
Commuter cost help: Subsidised travel (even partially) eases rising transport and energy costs. Explore potential discounts with local providers. This has double benefit if your location isn't easily accessible for lower-paid staff.
Interest-free Loans: Unexpected bills and housing costs can derail even the best budgeting. Offering short-term loans, not handouts, relieves immediate burdens without long-term budget drain. Consider partnering with ethical lenders if your HR team lacks internal capacity to manage them.
Bulk buying & discounts: Utilise the bargaining power of the company. Can you secure reduced rates on groceries, childcare services, or even energy providers? Even modest monthly savings directly impact disposable income and offset price hikes.
Free investment advice: Whilst extra money may be tight, offering people guidance on how to invest any surplus income can help improve their financial position in the long term.
“Around 4 in 10 adults (41%) who pay energy bills said it was very or somewhat difficult to afford them. ”
Transparency is Key
Even if your options are modest, honest communication builds more trust than radio silence. So it’s important to know how to deliver difficult message without fuelling disengagement.
The first step is to acknowledge hardship. Don’t downplay the impact of the crisis. Share anonymised data or stories (with permission) showing how employees are directly affected. This demonstrates that your listening and engaged with the real struggles your people face.
Next, you should outline that ongoing analysis to show that HR is continually seeking solutions, not excuses. And also update staff as situations evolve. This helps even if immediate outcomes are minimal.
Finally, invite collaboration. Ask for ideas from line managers and employee representatives. Often, small but ingenious solutions surface which address unique issues within departments.
The difference between 'nice to have' perks and genuine aid becomes clear in crisis. Prioritise schemes that directly target the cost of living burdens your employees face and communicate with the same care you want applied to internal pay policies.
Source: Visier Research
The Strategic HRD's Advantage
Periods of hardship are precisely when visionary HR leaders step up and prove their unique value to the entire organisation. The current environment calls for more than just reacting to pay review demands – it's a turning point in shaping your company's culture for years to come.
Proactive HR does more than just administer pay checks, it demonstrates an understanding of the factors that drive retention, innovation, and extra resilience even in dire circumstances.
Empathy isn't weakness – it's strategic intelligence. While cuts may be unavoidable elsewhere, the way HR acts sends a message far louder than any corporate social responsibility blurb on your website.
Aligning with Business Goals
It's tempting to view employee support as a 'cost center'. So it’s important to know how to reframe that narrative for C-suite buy-in.
Bringing productivity into the conversation is a surefire way to get attention. Financial anxiety translates into distracted workers, higher absenteeism, and talent flight. Your targeted support schemes aren't handouts; they are an investment in maintaining business function at a vital time.
Next, make sure to empahsise the competitive advantage. The recruitment landscape is changing. Candidates no longer compare just salaries but the entirety of your value proposition. Standing out as a company that genuinely addresses employee needs even in hardship will pay dividends for future hiring.
Finally, try to drive home how compensation is about more that pay checks. It’s about cultivating a culture where HR initiatives are perceived as business critical, not a fluffy 'extra'. This builds your influence in strategic decision-making, ensuring pay is a cornerstone of that strategy, not an afterthought.
The Data Gap: Bridging Insights & Actions
This is where your strategic expertise, paired with the right tools, becomes indispensable. A strong HRD doesn't rely solely on guesswork when making critical recommendations. So really consider how technology can assist you here:
Scenario Modelling: These tools let you explore the 'what ifs.' What's the impact of targeted increases vs. blanket raises? Are support schemes offset by saved recruitment costs? This moves you from reacting to advising.
Actionable Analytics: Go beyond spreadsheets to track how implemented changes actually impact metrics like employee satisfaction scores, internal promotion rates, and reduced attrition. Quantifiable results ensure continued support from a numbers-focused executive team.
Proactive Risk Assessment: Identifying areas of future skill shortages lets you plan now, not when competitors offer poaching salaries you then have to match. The value of HR-owned data insights in this respect is immeasurable.
Seizing this moment isn't solely about averting disaster; it's about demonstrating that HR has a strategic vision equal to any challenge. When economic turbulence subsides, you'll be positioned not as a support function, but as a driver of your company's long-term success story. It's a growth narrative the best and brightest employees will want to be a part of.
“HR will not be replaced by data analytics, but HR who do not use data and analytics will be replaced by those who do.”
—Nadeem Khan, Introduction to People Analytics: A Practical Guide to Data-driven HR
Now is the time to act
The path forward won't be without sacrifice or difficult trade-offs. But recognise that inaction itself extracts a far greater price – on your reputation, your talent pipeline, and the sense of shared purpose that fuels the resilience of your organisation.
If you take the right actions now, they won't be quickly forgotten, and the results achieved will ripple outward, affecting everything from quarterly results to the kind of talent your company attracts over the long run.
Your leadership style in handling this challenge sets the tone for a new relationship between your employees and the company. Show HR can adapt with ingenuity, guided by data but fuelled by compassion, and you won't just endure this storm, you'll emerge from it stronger.
Your company's future culture isn't dictated by spreadsheets and headlines, but by the choices you make as HR leaders right now.