Are Cost of Living Increases Mandatory?
July 4, 2022
Written by Sandra Reder
Senior Human Resource Consultant, Founder and President
Vertical Bridge HR
B.C.’s inflation rate is the highest it’s been since 1983 at 8.1% making it increasingly difficult for people to meet their monthly expenses. As an employer you may be asking yourself how are my employees doing? Should I be giving them a Cost of Living increase?
Let’s break down a few components to help you better understand a Cost of Living Adjustment (COLA) increase:
- What is a cost of living increase?
- How much of an increase are companies providing for their employees?
- Are you required to provide a cost of living increase yearly?
- How to keep your top talent from seeking a higher salary jobs elsewhere
- Example of a cost of living increase
1. What is a cost of living increase?
The Cost of Living Adjustment (COLA) is an increase in income that keeps up with the cost of living. In simple terms, it is calculated due to inflation, taking into consideration the amount a person should earn in order to maintain a specific standard of living.
2. How much of an increase are companies providing for their employees?
We recently surveyed some of our clients to see what they are doing to meet the demands that high inflation rates are placing on their employees.
Here are the results:
64.7% said yes, they would be providing their employees with an increase in compensation to assist with the higher costs due to inflation in BC.
29.4% said they would not
The “other” category had already given their employees increases in 2021.
The second question we asked was: How much were our clients providing for their employees as an increase to handle the impact of inflation?
3. Are you required to provide a cost of living increase yearly?
You are not legally required to provide an increase in pay to help your employees adjust to inflation, unless inflation has increased the minimum wage in British Columbia. This is where an employer would be legally obligated to provide an increase in pay, to match (or exceed) the newly established minimum wage standard.
4. How to keep your top talent from seeking a higher salary elsewhere
Providing a COLA increase can be one of the most effective methods to keep your top talent around. You’re acknowledging that the cost of living may not be as affordable as it once was. We know that many employees are feeling the pressure of inflation, and this is a great opportunity to show them that you care.
5. Example of a cost of living increase
Based on our COLA increase survey results above, we’re showing an average increase of 4%. The numbers below show an example of how to calculate a 4% increase in direct salary.
Starting salary = $50,000
$50,000 x 0.04 = $2,000
Starting salary + COLA = new salary
$50,000 + $2,000 = $52,000
About the Author
For over 20 years, Sandra has been a driving force within the human resource community. Her understanding of current HR best practices and trends is extensive, and her desire to ensure that Vertical Bridge is providing innovative programs and services to their clients is what drives her and the business forward. She has worked within a wide range of industries including healthcare, private sector, not-for-profit and public sector.
Over the years she has been privy to information that few employers ever hear directly from their employees. She became aware that many employers do not realize how they are perceived by their employees. That awareness produced Sandra’s strong interest in assisting employers to ensure that they are creating engaging and respectful workplaces. In 2005 Sandra founded Vertical Bridge, a full service HR and recruitment consulting practice.
In late 2014 Sandra identified a need for human resources support within the healthcare sector. She founded HealthBridge HR, offering a variety of HR solutions specifically for health care practitioners providing them with the HR expertise that they would not otherwise have access to.
Sandra is a well-regarded facilitator and speaker on a variety of subjects, including HR Best Practices and Inter-Generational Communication within the Workplace. She is a sought after keynote speaker on the topic of human resources and has presented at numerous association and industry conferences.
She is actively involved with HRMA (the Human Resources Management Association), Sandra currently sits on a number of Boards, including EMBERS, a downtown Eastside social enterprise and the Developmental Disabilities Association. Sandra is the past chapter president of the Association of Canadian Search, Employment and Staffing Services and past Chair of the Board of Governors for the Developmental Disabilities Foundation. She also has had the privilege of sitting on the local Chapter Board of Room to Read and she has actively volunteered her time with Covenant House in Vancouver.