Quick Take: Inflation’s Relationship to HR & Payroll

The Philippines sees a 8% rate of inflation this December, one of the highest inflation rates since 2018 according to ING. A 8% inflation rate means that basic necessities such as food, power, & transportation have increased by the average of the same rate. A wage earner has to spend an average of 8% more to buy the necessities they need. Because inflation affects how income is budgeted and spent, it will also affect the HR & Payroll in different ways.

There Will Be Effects on Company Budget

Since we’ve mentioned budget, let’s start by looking at how inflation will influence that of a company’s. Inflated prices may mean that projected expenditures on operating cost might end up bigger than expected. Things like power, water, and transportation might cost more than initial projections. This could in turn affect the wage and benefits pipeline. Bonuses or pay raises could end up taking the hit to make up for budget adjustments.

It Affects Application & Hiring

The longer inflation keeps up at the rate it has, the more pronounced its effects will be to a person’s salary. This will have a trickle effect on how much any given position in a company makes and if this is worth it to applicants. Along with salary, expectation of different benefits that augment inflation will not be uncommon, like desiring work-from-home setups to offset transport expenses. Non-taxable allowances might also make compensation packages more persuasive and attractive. HR & Management in the Philippines might need to work together to reevaluate payrolls & offers especially when hiring rates start to dip or attrition rates start to rise.

Inflation May Influence But Not Necessarily Increase Salary

The last wage increase that we have seen in the Philippines was last May, 2022. It raised the minimum wage by 33php per day but only in NCR. This increase does not cover the recent inflation that we are seeing.

While inflation may open dialogues regarding raising wages, it isn’t always guaranteed, nor is it a sustainable solution both for companies, employees, and the economy. However, wages will influence employee decision making. Companies in the Philippines will need to walk a tightrope in offering compensation that’s sustainable and maintaining a payroll that will not hurt gross company income.