Spending on essentials, let alone luxuries, has been tightly squeezed as they grapple with soaring energy bills, rising rents, increasing interest rates, and escalating food bills.
Even if inflation has peaked, as some economists have speculated, it still seems it will take some time to return to a time when workers feel prices reflect their pay.
Because of this, there is unprecedented demand for a pay rise, with the majority of UK workers expecting a salary increase this year according to our latest People at Work 2023 survey.
This is a situation that is not going to go away. In fact, as the recent and widespread strikes across the UK have shown, workers are willing to take increasingly drastic steps to get their point across.
The importance of pay
The demand for higher pay comes despite two thirds of UK workers receiving a pay rise in the past 12 months, averaging 4.9%.
Across various industries, those in the finance, construction and IT/telecommunications sectors have the highest pay rise expectation for 2023, while leisure and hospitality staff anticipate the lowest.
It is no surprise at a time of a cost of living crisis that six in 10 (61%) workers say that pay is now the most crucial factor in a job.
It rates above job security (43%), career progression (40%) and enjoyment of what they do (37%) as a reason to stay with their current employer.
Finding a balance
Employers have an arduous task this year weighing up the clamour for higher pay against their own challenges around rising costs and tightening profit margins.
Unfortunately, this comes at a time when workers understand they are in the driving seat and are confident that if they do not get a pay rise from their current employer, they can secure one by moving to a competitor.
Because of this, it is going to be a question of finding the right balance for employers.
For many, the well is already dry.
Those businesses that are not in a financial position to offer decent pay rises will need to think creatively about how to appease staff in other ways such as offering greater flexibility of hours and location, more paid leave or other benefits.
Don’t ignore what is in front of you
There is another potential solution that is right in front of many organisations struggling to keep hold of staff.
Research shows that both younger and older workers continue to be overlooked by many organisations when it comes to ensuring they receive satisfactory pay and rewards.
While two thirds of all other age bands anticipate a pay rise, only half of Gen Z workers and the over-55s expect to receive a pay rise within the next 12 months from their current employer.
It is well known that training up inexperienced staff is far more costly for businesses than advancing the skillset of those already within the business.
Yet, organisations continue to make the same mistakes repeatedly. Make sure your business does not do the same. Ignoring both experienced workers and the next cohort of talent in this way will mean that vital skills and potential are lost to a competitor.
Use all available levers
With the current cost of living crisis showing no sign of abating, pay is set to remain a key battleground this year. As the power balance continues to shift towards the employee, businesses must make sure they do all they can to appease demands for higher pay through carefully curated compensation packages.
Organisations must remember though, that while pay is battleground number one, workers do still crave flexibility and remote working. Because of this, they should use all the levers available to ensure they can retain talent.
Sirsha Haldar is general manager, UK, Ireland, South Africa at ADP