About us News room News releases Small and midsized businesses concerned about inflation, pressure to increase wages and benefits
May 03, 2022

Small and midsized businesses concerned about inflation, pressure to increase wages and benefits

Principal Financial Group® reports that while many small and midsized businesses show financial improvement from this time in 2021, shifting geopolitical issues, interest rate hikes, and continued recruitment challenges raise concerns about ongoing impacts. 

According to the latest Principal Financial Well-Being IndexSM (WBI), 68% of businesses report financial improvement compared to this time last year. In March of 2021, large businesses1 outpaced small businesses2 in financial improvement by 37 points (72% compared to 35%). Today, that gap narrowed to 20 points (81% compared to 61%). However, as business and cost of living expenses continue to rise, both employers and employees rated inflation as their number one concern. Businesses are feeling pressured to increase wages and benefits while employees are concerned about mental health and well-being and finding a new job with better pay. 

“Employers are keeping a close eye on inflation, weighing the impact of rising costs of doing business with how much they can invest in talent – for both recruitment and retention. They’re looking at expenses and prioritizing salaries and benefits, when able,” says Amy Friedrich, president of U.S. Insurance Solutions at Principal. “Increasing costs have prompted businesses to get more creative in how they attract new talent and improve the employee experience as they boost hiring efforts.”   

Businesses ramp up hiring, increase wages 

Amid the increased competition for talent, businesses are focused heavily on growing their number of employees. Compared to this time last year, significantly more businesses are increasing employees, with 53% increasing compared to 32% in March 2021. And on average, 36% of open positions at a company are brand new positions. 

Looking closer at job vacancy levels, small businesses are faring better than their larger counterparts, which are experiencing greater job vacancy levels today. Just 28% of employers with less than 500 employees report higher job vacancy levels vs. 43% of employers with more than 500 employees.  

This focus on employee attraction has generated definitive actions from employers. Nearly half of businesses are offering flexible work schedules (49%) while 40% have increased wages for the majority or all of their employees. Over half of the employees surveyed reported receiving a wage increase during the past year, the most common amount was a 3% increase. 

Friedrich explains that “businesses are feeling confident about their current cashflow and are ramping up operations. Employers are focused on adding staff as they expand their business.” 

Employee benefits remain key for attraction and satisfaction

The significant role employee benefits play is more apparent than ever, with 37% of employers noting that they’re increasing the quality of benefits they already offer to help with employee recruitment. In addition, employers are prioritizing specific benefits like caregiving support, vacation time, and pet insurance, which all rose to the top of the list of benefits employers are offering to attract new employees. Among the employees surveyed, those who were less likely to have benefits such as retirement, vacation time, and dental and vision insurance in their current role were more interested in leaving their job.  

As businesses contend with the shifting labor force, improving the employee experience is key for retention. When asked about benefits businesses are increasing to improve employee satisfaction and wellbeing, employers identified disability insurance (short or long term), vacation time, and mental health and well-being programs as the top three. Employees with greater job satisfaction are more likely to have access to financial wellness, training and educational opportunities, as well as caregiving benefits. 

“As businesses evaluate ways to attract and retain talent, offering competitive benefits that meet employee needs is critical,” says Friedrich. “Communicating with employees and adapting benefits to their needs creates a supportive workplace. Today, employees want to feel connected to the work they are doing. They are selective regarding where they want to work and what they want from an employer. Adding benefits such as training and education opportunities and retirement plans contribute to a valuable employee experience.” 

Retirement the new top reason employees leave

Retirement was among the key drivers of staff leaving, business leaders said. Businesses reported a 16% decrease in staff in the past three months, led by 27% of employees leaving because of retirement. Staff losses from retirement may not last, however, as people face rising costs and potential losses in savings due to inflation and recent market volatility. 

“As the final wave of Baby Boomers turn 60 it’s reasonable to expect a phased transition into retirement, including part-time careers and trying something different or new,” said Sri Reddy, senior vice president Retirement & Income Solutions at Principal. “Employers would be well-served to rethink how they define roles, as well as benefit structures, to keep some of these highly-skilled, but potentially part-time, workers.” 

See all results and insights from the latest Principal Financial Well-Being IndexSM (PDF).

News Release Contact

Benefits and protection

Sara Bonney, 515-878-0835