Should I Implement a Cost-of-Living Raise in My Aesthetic Practice?
For the past decade, the cost of living has increased faster than employee wages, especially within the last year or two. Plus, with factors such as inflation and a likely recession (economists say there is a 61% likelihood for a recession according to businessinsider.com), the cost of living doesn’t show signs of slowing down soon. So, what do you do when your staff come to you expressing they would like a raise to offset the cost of living? Should you implement a cost of living raise? Keep reading to understand what exactly a cost-of-living raise is and decide if your employees should be given one. What happens if your aesthetic practice can’t afford to give your employees a raise, if prices go down, do you take away the cost-of-living raise? And more!
What’s a Cost-of-living Raise?
Cost-of-living raises are salary increases intended to help employees cover their increasing living expenses due to inflation. This makes it difficult for many employees to cover their basic needs.
Without a cost-of-living raise, employees may experience a decrease in their purchasing power as their wages fail to keep up with the rising cost of goods and services. This can lead to financial stress and decreased morale, which can ultimately impact the overall productivity and success of your practice. As such, offering cost-of-living raises can not only benefit employees but also the business as a whole by promoting employee satisfaction and retention. There is also an alternative approach to providing your employees with a raise and this is based on their performance. We will explore this option in the sections below.
Balancing Employee Needs and Business Expenses
The Social Security cost-of-living adjustments in recent years have been significant, with raises of 5.9% in 2022 and 8.7% in 2023 to help benefits keep pace with inflation. However, as an employer, you may be hesitant to give such large raises to your staff, as it can have a significant impact on your business expenses.
When considering a raise for your employees, it’s important to balance their needs with the financial impact on your practice. While a raise of 9% may be desirable for your employee, it may be more than you want to give. Keep in mind that even a small increase in hourly pay can add up to a significant cost over time, so it’s important to make informed decisions about employee compensation.
Exploring Options for Employee Raises: Considerations for Employers
Deciding whether to give employees a raise every year on a cost-of-living adjustment can be a tricky issue for you as an employer. While it’s important to ensure that your employees are paid fairly and can keep up with inflation, you also need to consider the financial impact on your business. One option is to give employees a cost-of-living raise or an annual raise, and then determine which is higher. However, it’s essential to make sure that the raise you provide is not lower than what the employee deserves, as this can negatively affect their morale.
Another option is to base raises on employee performance. For example, meeting expectations may earn a 4.5% raise, exceeding expectations may earn a 5.75% raise, and exceptional performance may earn a 6% raise. However, this should be contingent upon a fair appraisal and employee review, which should be given at least once a year. By connecting pay raises to performance, a fair and motivational system can be established for employees.
The Importance of Regular Performance Reviews for Employee Development and Compensation
Regular employee performance reviews are crucial if you choose to base your annual raises on employee performance. Giving feedback twice a year, for example mid-year in June and at the end of the year in December, ensures that employees have a clear understanding of their standing and what they need to improve upon to receive a raise. This process of performing an employee review in June not only motivates employees to perform better, but also prevents them from being blindsided during their final performance review in December where they have an opportunity to receive a raise.
Performance reviews should not be surprises. Rather, they should serve as a guide to help direct your employees towards improvement. This feedback should be ongoing throughout the year, not just during performance reviews. By giving employees regular feedback, you can help them stay on track and make adjustments as needed.
Of course, not all employees will meet the expectations you set for them. In these cases, you will have to make tough decisions about whether to provide a raise or keep the employee on staff. By giving regular feedback and setting clear expectations, however, you can help your staff meet their goals and avoid these difficult decisions altogether.
Factors Behind a Cost-of-Living Adjustment Raise
There are various factors that come into play when considering a cost-of-living adjustment raise. Rent and mortgage rates have increased significantly in the past year, with some seeing an increase of hundreds of dollars. The supply chain shortages have also caused prices to rise in areas like food and clothing. Health insurance costs are always on the rise, and utilities like electricity have also gone up due to fuel costs. Additionally, private school tuition and personal entertainment costs have seen a significant increase.
Planning for Potential Changes in Cost-of-Living Adjustments
It is important to think ahead and plan for potential changes when considering cost-of-living raises. If prices decrease, such as the cost of gas or groceries during a recession, it may be tempting to reduce a previously granted cost-of-living raise. However, this could have negative consequences as employees may have already adjusted their spending habits based on the increased salary. Taking away the raise could create financial difficulties and lead to decreased morale. To avoid this situation, it is important to carefully consider cost-of-living adjustments and plan for potential changes in the future.
Establish a Clear Cost-of-Living Raise Policy
As the world continues to change and evolve, you, as an aesthetic practice owner, or administrator must also adapt to new circumstances and challenges. The COVID-19 pandemic brought about significant changes in the workplace, with remote work becoming the new normal. With this change, you must revisit your policies on cost-of-living adjustments and raises, especially when it comes to remote workers.
One of the biggest challenges that you face when it comes to remote work is determining whether to give cost-of-living raises to employees who work from home. This can be a difficult decision as remote work means that employees are no longer incurring some of the expenses associated with commuting, such as fuel costs. However, remote work can also come with other expenses, such as higher utility bills and the cost of setting up a home office. As such, it is important for you to carefully consider all factors and come up with a fair policy that takes into account the unique circumstances of remote work.
In conclusion, it is essential for you to have a clear policy in place regarding cost-of-living raises and performance raises. By taking into consideration all relevant factors, such as employee morale and financial feasibility, you can make informed decisions that benefit both the company and its employees. Engaging in open communication with staff and soliciting their input can also help to create a sense of collaboration and ensure that everyone’s needs are being met.
Schedule Your Free Consult & Learn More!
If you want to maximize profit, reduce costs and ultimately thrive in your aesthetic practice, don’t hesitate to reach out to our team of experts for coaching! Schedule a free consult with our award-winning expert, Jay Shorr, to make sure that you’re on the right path to success!
To learn more about cost-of-living raises and factors to consider if you want to implement them in your aesthetic practice, be sure to listen to episode 79 of Shorr Solutions: The Podcast!
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About Shorr Solutions:
Shorr Solutions is an award-winning practice management consulting company with offices in South and Central Florida. We work with aesthetic medical practices in all 50 states of the U.S. to help them strengthen the operational, financial, and administrative health of their business. With decades of industry experience, our father-daughter partners, Jay Shorr and Mara Shorr, lead our knowledgeable team of experts to assist practices in the aesthetic medical fields increase efficiency, increase revenue, and decrease their costs.
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