As inflation rates have soared in recent months, the impact has been felt by employers and employees alike. According to Statistics Canada, Canada’s inflation rate, now at 7.7%, has skyrocketed at the fastest pace in almost 40 years. This is the highest rate since 1983. 

In an ideal world, wages would keep up with rising inflation rates. Currently, this is not the case across many industries.  

Why wages can’t keep up?

The relationship between inflation, wages and business costs is circular and intertwined. Due to inflation, both the costs of living and the costs of doing business are drastically increasing, making wage increases for many businesses challenging or, in some cases, unsustainable. If a company is able to invest in higher wages, they likely have to increase the prices of their products and/or services to account for their overhead. Thus a further increase in the cost of living.

Wage increases need to be regulated in order to keep the economy running smoothly. Specifically in Ontario, Bill 124 has placed strict caps on the public sector’s wage growth, allowing wage increases to only go up by 1% annually. This cap on the public sector also brings down the overall wage trend. 

What’s causing the rise in inflation rates?

The surge in inflation is caused by various global factors that go well beyond employment and wages. Price inflation is most commonly due to supply chain disruptions. In our current state, this can be majorly attributed to the rippling effects of the pandemic and, more recently, the war in Ukraine. Naturally, the harder or more expensive it is to obtain goods or services, locally or globally, the more expensive the production and delivery of those products or services becomes.  In turn, the cost to the consumer also increases. 

Are employees entitled to a pay raise as inflation rates increase?

In Ontario, labour and employment laws do not outline when, or if, a pay increase is mandatory, except when it comes to minimum wage. Minimum wage is generally increased on an annual basis in an attempt to keep up with inflation. Outside of this, an employer is not obligated to give their employees a raise.

You’ll often hear of a “cost of living raise”. This is not required and, while there would be general recommendations on how much a cost of living raise should be (dependent on inflation), any pay increase is at the discretion of the employer

What employers should keep in mind about raises

While raises are not mandatory, if your business currently has the capacity to provide wage increases, it’s a good way for employers to keep their employees happy and reduce employee turnover. When considering your wage budget, keep in mind that hiring new employees is expensive, so it’s sometimes in an employer’s best interest to keep their long-term employees content and feeling valued as opposed to continually having to hire and train new employees. 

A small bump in pay for an employee can go a long way and is both a time and money saver for a company. If wage increases aren’t feasible in the current inflated economy, consider other ways to compensate your employees, such as an increase in benefits, more flexible working hours/arrangements, and/or additional vacation time.

If you need help navigating the workplace issues that have arisen out of this inflation spike, get in touch for a consultation!