Payroll budgets help business owners understand the total cost of their employees and encompass all the indirect costs of employing staff full-time, such as leave entitlements, workers’ compensation and payroll tax. Having a concise payroll budget also highlights areas of potential cost savings.
There is much to consider when budgeting for salaries. But in 2023, there are seemingly more considerations than usual; a threatened recession, ever-increasing cost of living and rising inflation are all playing a significant role in how companies create their payroll budgets.
Yet one recent study by Mercer has revealed that over 50% of New Zealand businesses haven’t identified whether or not inflation will play/has played a part in payroll budgeting.
Only one-quarter of New Zealand businesses plan to factor inflation into their budgets. The majority of businesses plan to set salary increase budgets by just 3%, which is the same as the previous year.
Employers can expect a challenging employment market in 2023.
We’ve spoken in detail about the challenges of the current employment market in New Zealand, as the country faces widespread competition over skilled workers, matched with high inflation forecasts. Workers having to maintain a standard of living in these challenging times have been forced to shop around for higher-paying jobs.
And yet many experts are concerned that 2023 will bring heightened economic challenges after New Zealand’s inflation rate failed to improve in the December quarter. Last week, Statistics New Zealand data showed the annual consumer price index (CPI) increased by 7.2% in the 12 months to December 2022. This comes after a 7.2% annual increase in the September 2022 quarter and a 7.3% annual increase in the June 2022 quarter. Despite these figures being lower than the projected 7.5% increase forecasted by the Reserve Bank of New Zealand, it far exceeds the target of 1-3%.
While it appears inflation isn’t getting worse, we are yet to see any moderation. Infometrics senior economist Brad Olsen told Newshub “We know that food prices, for example, have advanced at their fastest rate on record, nearly going back 32-odd years. And again we are continuing to see very broad price pressures.
“In the December quarter, 72 percent of all of the items measured in the CPI basket increased in price. That is the second-largest proportion of items increasing when you go back over the past decade and a half so there is still a lot of pricing pressure coming forward despite fuel prices pulling back and supply chains that are improving.”
Increasing financial pressure will put pressure on households
Employers have a duty of care to ensure their employees are paid fairly and in line with the current economic environment of the country. They should consider the impact these challenges will have on families and households both at present and in the future and should do what they can, within reason, to support their people. Supporting their workers in such a way will also maintain employee retention and satisfaction.
Many companies have made a conscious effort to pay salaries that align with inflation by offering higher-than-normal increases compared to previous years. New Zealand auction site Trade Me raised the salary of each of their employees by $3,500 to account for the rising cost of living.
The company’s CRO Annie Brown said, “Remuneration is critical in the current market. At Trade Me, we’ve invested in ensuring our pay and overall remuneration package is competitive and we review this constantly.”
Similarly, Connetics, the contracting company tasked with facilitating New Zealand’s electricity distribution networks, said the company made a quick decision mid-last year to lock in their workers’ salaries until next year.
Mark Lewis, head of People and Culture said, “We see a similar or smaller shift this year but still beyond what we had previously agreed through union negotiations, with an emphasis on critical roles and people for larger increases.” He explained that this is a similar direction to what the company took last year, when employees received a 5% increase in some roles and 10% increase to acknowledge good performance or for the purpose of retaining staff.
Matching salaries to inflation will ensure lower employee turnover
The Mercer study also found that a third of all organisations struggled with high staff turnover in 2022. This could be improved if companies were willing to incentivise people to stay, particularly in a volatile economic environment with record-low unemployment rates.
Stephanie Love, Remuneration expert at Love HR told HRD that naturally, some companies may struggle to increase the salaries of their employees. Instead, they could introduce more creative solutions, such as:
- Offering one-off lump sum payments to staff
- Making sure there is pay equality across the board so that all employees are supported.
- Providing petrol and grocery vouchers to ease the cost-of-living burden
- Providing breakfast foods and/or regular company lunches at the office.
- Offering professional development for staff to hone their skills in their area of expertise.
“Even if increasing remuneration budgets to allow for inflation is unrealistic, initiatives like providing your people with support for financial literacy can help relieve any financial burden,” says Love.
