Helping employees through a cost of living crisis

The term “the cost of living crisis” has become commonplace, not only in New Zealand but across the world. It refers to prices for goods and services rising faster than people’s disposable incomes, making it harder for people to make ends meet.

New Zealand is especially susceptible to cost of living shocks due to its geographic isolation and the fact we rely on supplies of fuel and other goods from overseas, which can push inflation and living expenses up faster than any increase to wages.

Rising costs affect employers as well as employees, especially when fuel prices spike or raw materials get more expensive or harder to obtain. Staff might also start asking for pay increases, more flexibility, or to be able to work from home due to increased costs of commuting.

So how can your business balance these increased pressures, and should you look at providing help to employees during tough economic times? And if so, what are some practical things you can do when other business expenses may also be rising? Let’s explore the issues.

Why should employers care about cost of living pressures?

First and foremost, every employer has a duty under the Health and Safety at Work Act to eliminate or minimise risks to the health and safety of their employees, which includes their mental as well as their physical health.

Financial stress may not appear to be an immediate problem in the workplace, but it is proven to affect mental health, which impacts workers and the business’ ability to perform and thrive. Here are a few stats:

• Four out of 5 employees say the cost-of-living pressures have negatively impacted them, with 43% saying their mental health had been negatively impacted, 11% saying their productivity had declined, and 8% taking more sick leave and time off than previously (Employers and Manufacturers Association’s 2024 Workplace Wellbeing Survey).
• 62% of Kiwi workers list financial concerns as the main cause of non-work-related stress (BusinessNZ’s Workplace Wellness Report 2023).
• Employees lose 3 hours a week at work worrying about their finances (Te Ara Ahunga Ora Retirement Commission).
• Financially-stressed employees are 5 times more likely to be distracted at work and 73% say they would move to another employer that cares more about their financial wellbeing (PwC’s Employee Financial Wellness research).

Increasingly, business leaders recognise the importance of their employee’s mental health and wellbeing, and the wider social responsibility to provide a positive, supportive work environment for their team members.

We understand it’s not always easy when businesses, especially smaller ones, may be feeling the squeeze too, with rising costs and shrinking margins. Not all organisations can afford to give their people an immediate pay raise, but there are plenty of things that you can do that are both practical and affordable.

Here are 8 tips you can implement today to help ease the burden of the cost of living for your employees.

Tips for supporting employees through cost of living spikes

1. Pay your employees fairly

Obviously, ensuring you pay your people fairly is a good place to start. Legally, all businesses have to pay workers at least the minimum wage, but an increasing number of employers are joining the Living Wage Movement that raises hourly rates by a couple more dollars.

We recommend scheduling annual pay reviews, so your rates remain competitive and your employees feel well remunerated and valued.

Beyond that, you may be able to offer other monetary assistance, such as one-off bonuses, or look at other creative measures, e.g. interest-free crisis loans or income streaming (where people can get money before payday).

But it’s not just about money. Retirement Commission research shows that among households earning between $100,000 and $149,000, just over half (55%) describe themselves as being financially comfortable.

Read our in-depth article on how to get pay right.

2. Be open and supportive

There can be a lot of stigma around mental distress and people may not open up about being under financial pressure. If business leaders and managers are approachable and empathetic, it builds a culture where people feel able to talk about challenges (not only money issues) and can help you understand the pressures people may be living with.

Think about how you can support employee wellbeing and talk honestly with your people, asking them about ways you might be able to help. Source and share helpful information and resources. If you have an Employee Assistance Programme, make sure everyone in the organisation knows about it. If you don’t have one, you should consider it. There are also external services that offer free assistance with mental and financial health.

3. Ensure your payroll systems are accurate and reliable

Again, this may seem obvious, but when people are depending on their income to pay bills, they need it there when expected. So make sure your payroll system pays people correctly and on time. If you’re still doing anything manually, look into the improvement and efficiencies software can bring.

We explore the top things to look for in a payroll service in this post.

4. Review your benefits and how you can tailor them to employee needs

Now is a good time to review your existing employee benefits and see if they are what people need in the face of rising costs and rates of financial stress.

You could look at increasing contributions to KiwiSaver, assisting with student loan repayments, or offering discount schemes, or medical or other insurance, such as income protection or critical illness cover. A UK study by YuLife found life insurance was an important employee benefit (with 48-63% of respondents saying it was important to their sense of financial wellbeing).

5. Provide financial wellbeing assistance and education

Most Kiwis receive no formal financial education, so looking at helping employees develop money management skills can be a real aid. Many experts stress a focus on guidance on a range of issues such as budgeting, managing mortgages and debt, investment, and saving for retirement.

Forming new habits can take time, so measures to improve employee financial skills should be seen as an ongoing process, rather than a quick-fire solution. There are a range of organisations that partner with businesses to offer free or low-cost financial capability and wellbeing initiatives.

Watch our webinar on practical strategies for supporting financial wellbeing.

6. Offer flexible work arrangements

Flexible and hybrid work is very much an established part of the employment landscape and employees have a legal right to request flexible work arrangements, which you must consider carefully and in good faith.

Allowing employees to work from home (where possible) or change their hours or start/finish times can help them save on transport, food and other costs, such as childcare. A better work-life balance also contributes to overall mental wellbeing and engagement.

7. Provide transport assistance

Not all businesses can offer work-from-home arrangements, but there are other initiatives that can help employees with rising transport costs, from additional financial support and reimbursements to carpools and encouraging the use of cheaper (and greener) travel modes by providing bicycle discount schemes (such as WorkRide), bike storage, and charging points for electric cars.

8. Other perks

Small things can add up to helping employees save money and many organisations are offering more than just free tea and coffee, with on-site food, free lunches and snacks, and restaurant vouchers. Others offer staff discounts on their own products.

Attractive perks build company culture, boost employee morale and retention, and make the business a more appealing place for new hires.

Helping employees with cost of living pressures: Frequently asked questions

Is providing alternative measures - e.g. car pooling for staff who live far away - commensurate with the application of assisting without monetary gain or not enabling staff to work from home?

It is totally reasonable for you to decline work from home requests and not increase employees’ pay, but instead choose to support them in other ways, like providing carpooling initiatives.

Doing one thing to support staff doesn’t mean that you have to also make payments to them or that you have to agree to work from home requests. You can choose what's affordable for the business and appropriate to employees’ roles.

If we offer an allowance, such as for travel to and from the office, can this be available for a specified time rather than being a permanent change?

Yes. If you would like to only offer employee assistance or a benefit for a limited period of time (e.g. while fuel prices are high), that's totally fine so long as you communicate to staff that it's not a permanent change and will only last for a specified period.

Be sure to capture the details in writing, to avoid confusion and protect you should an employee challenge the decision later on.

Rather than a pay rise during the fuel crises, should we consider allowing staff to use work vehicles to get to and from work? Are there any tax implications?

Allowing employees to use work vehicles is a good solution. Make sure you update any company vehicle policy (or create one if you don’t have one) so it describes terms of use of vehicles to be used for travel to and from work, e.g. if there is a limit to the distance they can travel.

There may be tax implications that you should investigate - employees having access to a company car for commuting may be considered a fringe benefit and tax may apply. If you are reimbursing employees for payments they make on transport, the tax situation is also different to paying them more money each week (which would incur PAYE tax). These are conversations to have with your accountant or a tax professional.

If an employee claims they can no longer afford the commute to work, at what point does their personal transport issue become an employer's problem (if ever)?

The short answer is it never becomes the employer’s problem. Typically, employees are responsible for the cost of getting themselves to and from their place of work (unless you have work that is done in remote locations - e.g. you're flying people into mountainous regions for electrical or forestry work - then the employer would cover that cost).

If an employee says they are struggling to manage the cost of commuting, we recommend discussing the issue in the first instance, to explore ways that you might be able to support them or reduce costs, e.g. pay a weekly transport allowance for a limited period of time or provide more flexibility around work schedules or work from home (WFH) options.

If an employee is refusing to come to work because of the cost, you could take disciplinary action.

Should I talk to staff about cost-of-living challenges, although we can’t offer them financial support?

We always stress the importance of communication and transparency in the employment relationship, so we recommend discussing issues with employees even if you aren’t in a position to provide financial or other support. It shows good faith and that you take your employees’ wellbeing seriously.

Being transparent about your position and the options you’ve considered also opens an opportunity for staff to come to you with ideas or to propose solutions you may not have thought of.

We’re a non-governmental organisation (NGO) - what would be the best approach to support staff with the cost of living?

As a NGO, there may be some things you can do to support your staff financially or to give them more flexibility with schedules or working from home. However, you may be strapped for cash in this funding environment, so there may not be a lot you can afford to do.

As above, we recommend being clear with the team and having a conversation with them about the options you've looked into and to explain that, unfortunately, you don't have the resources to provide additional support at the moment.

We have office-based staff as well as staff who work remotely, and we are currently offering office-based staff a 'fuel-free day' each week to work from home. Is it fair for remote team members to expect any sort of compensation, and if so, what could we offer?

You aren’t required to offer WFH staff compensation, as you are only changing your office staff’s working conditions to reduce their costs on the 'fuel-free day' and you’re not paying them extra money. Your remote staff are already saving those costs by working from home the whole time.

However, if you were to pay office staff extra - e.g. to help with commuting costs - then you probably should pay your remote staff equally.

We provide staff with work vehicles that they use to travel between home and our workshop. Some of them have moved much further away and it is costing the business more money in fuel. How can we manage this so the increased fuel costs don't disadvantage the business?

The best way to handle this issue is to have a vehicle policy that clearly outlines what use is covered and whether there is a cap on the employer’s contribution to employee travel costs, e.g. 20 kilometers of travel or half an hour of travel time.

If you don’t have a policy in place, you could create one that will apply to any new employees going forward. For existing staff who have work vehicles, you need to consult with them to change the conditions of use (as it is a change to their working conditions), and propose putting a limit on the benefit they receive and then consider their response.

We recommend getting specialist advice to ensure you manage the consultation process fairly, because taking benefits away from employees is likely to create some dissatisfaction or conflict.

An employee who comes to work early to beat traffic (and takes short lunches) asked to be able to finish early but the role requires them to be on-site for full office hours, how should I respond?

If the employee understood when they signed their employment agreement that the role requires them to be on site until 4 or 5pm, then choosing to arrive early and taking a short lunch break is their decision.

Get together with them to clarify the requirements of the role and explain that they aren’t able to finish early. They may be unhappy with that, so you will have to manage that. Reiterate why you need them until the end of office hours and ask if there's anything else you can do to support them. In the end, they have to decide if the role is right for them.

Also check that you aren’t breaching minimum wage requirements, if the employee is working longer hours because they start when they arrive.

Should I offer an incentive to employees to get them to work on time (remembering it's in their contract to start at 8am)?

If you want to offer people an incentive payment to get to work, you can. But there may be better things to use your resources on.

Part of any job expectation is the ability for an employee to get to work at a certain time so they can start work and you can run your business with confidence. That’s why it is included in the employment agreement.

If your employees aren't arriving on time, it would be better to approach it as a performance or misconduct conversation, rather than incentivising something as basic as getting to work. If after an initial conversation to clarify expectations, you could potentially put the person on a performance improvement plan or take other disciplinary action (e.g. issuing a formal written warning or final written warning).