Navigating the Cost-of-Living Crisis and Its Impact on the Workplace

In recent years, the cost of living has increased significantly, presenting a challenge for people around the world. From rising housing costs to increasing day-to-day expenses such as food and transportation, people have been negatively impacted, resulting in changes in spending habits, increased food insecurity, decreased monetary savings, and negative impacts to mental health (National Centre for Social Research, 2023).

Employers have a crucial role and opportunity to support employees through these financial challenges. By understanding the impact of the cost-of-living crisis on employees, organizations can implement strategies to support their employees and foster greater employee engagement, wellbeing, and productivity.

The Impact of the Cost-of-Living Crisis

While there are many factors that have led to the fall in real disposable income since 2021, it is understood to be caused predominantly by high inflation outstripping wage and benefit increases, and it has been further exacerbated by impacts from the COVID-19 pandemic, high interest rates, and disruption to global supply chains. While the rate at which costs have increased has fallen and is predicted to continue to decline, costs are not expected to decline to prepandemic levels.

These economic factors have a profound impact on employees. A recent study from the National Payroll Institute in Canada found that 72% of working Canadians spent at least some of their workday actively dealing with or thinking about their personal financial matters. This number is up from 68% in 2021 (National Payroll Institute, 2022). This research also found that employees who are experiencing financial stress lose up to 11 hours per week in productivity and that worrying about finances on the job cost employers more than $40 billion in 2022 – a steep increase from $26.1 billion in 2021.

Eight in ten Canadians are looking for a new job in 2024, driven by a desire for an increase in pay (HR Reporter, 2024), and financially insecure employees are also twice as likely to seek new employment (Society for Human Resources Management, 2022). These figures demonstrate that the cost-of-living crisis has a clear and tangible impact on an organization’s bottom line due to decreased productivity and potential turnover.

Initiatives to Support Employees

Supporting employees with the challenges of the cost-of-living crisis is an opportunity for the organization to demonstrate support and understanding of these challenges as well as foster a resilient workforce. Before implementing any program, it is critical to gather feedback from employees to ensure alignment between the initiatives offered by the organization and the needs of employees (see McLean & Company’s Develop an Employee Listening Strategy research for more information).

Organizations can implement a range of initiatives to assist employees with the cost-of-living crisis:

1. Foster an environment of psychological safety: Strive to create and maintain a psychologically safe environment where employees feel safe to share their personal experiences and discuss difficult topics. Compared to respondents that feel low psychological safety, those who feel that high psychological safety exists within the organization are: 2.3 times less likely to feel burned out and 1.8 times less likely to feel stress is increasing (McLean & Company, 2023 HR Trends Report; N=941-929). A psychologically safe environment encourages individuals to seek support and guidance, potentially alleviating financial stress through access to resources and assistance programs. See McLean & Company’s Introduction to Psychological Safety for HR research for more information.
2. Implement financial wellbeing and education programs: Empower employees with the knowledge and skills needed to navigate their finances effectively. Provide easy access to financial information and resources through partnerships with the organization’s learning and development function, employee assistance programs (EAPs) and/or pension or retirement savings providers. For organizations with an existing wellbeing program, enhance existing offerings with financial wellbeing resources. For more information, see McLean & Company’s Create a Holistic Employee Wellbeing Program research.
3. Use data-driven decision-making: Collect and analyze data from employees and benefits providers to identify trends and areas of improvement, including EAP usage rates and benefit claim submission to payment times. For example, there is variation in benefit claim processing time between different providers. While some reimburse employees within days, others can take 3-4 weeks. This difference can impact those individuals who rely on timely reimbursements to cover expenses. To address this issue, employers can leverage data to pinpoint inefficiencies and work with benefits providers to streamline payment processing times. For more information, see the McLean Academy course Data-Driven HR.
4. Enhance benefits awareness and delivery: Ensure that employees are fully aware of the benefits available to them, including retirement savings programs, healthcare plans, employee reimbursements (like tuition reimbursement programs, or commuting reimbursements), and EAPs.
5. Explore on-demand pay options: Look into implementing pay systems and technologies that allow employees to access their earnings as they are earned, resulting in greater financial flexibility.
6. Incorporate regular compensation reviews: Conduct regular and timely reviews of compensation packages to ensure they remain competitive and reflective of current economic conditions.

In the face of the cost-of-living crisis, organizations have an opportunity to be champions of employee wellbeing and financial resilience. By prioritizing initiatives such as financial wellbeing training, regular compensation reviews, and data-driven decision-making, organizations can create a workplace where employees feel supported and empowered.

Works Cited

Brown, R., Wilson, C., Begum, Y. “The Price We Pay: the Social Impact of the Cost-of-Living Crisis.” National Centre for Social Research, July 2023. Accessed March 2024.

“Financial Stress-Related ‘Distraction Subtraction’ Costing Businesses Billions.” National Payroll Institute, November 2022. Accessed March 2024.

Miller, S. “Employers Are Feeling Employees' Financial Pain, Enhancing Benefits.” Society for Human Resources Management, October 2022. Accessed March 2024.

Wilson, J. “8 in 10 workers seeking new jobs for higher pay.” HR Reporter, February 2024. Accessed March 2024.