Pay Rises and the Cost of Living: How Employers Can Respond Well

It’s no surprise that the cost of living is putting real pressure on people right now. Fuel prices are front and centre, but they are far from the only issue. Rent, interest rates, utilities, insurance, and compulsory KiwiSaver contributions have all gone up too. For many employees, it can feel like their pay just is not stretching as far as it used to. 

When that happens, it is natural for people to look to their employer for help, often in the form of a pay rise. 

The challenge is that employers are often feeling the same squeeze. Many businesses are dealing with rising costs across the board, which means there is less room to move than staff might expect. So how do you respond in a way that is fair, practical, and still supportive? 

1. Keep pay and business performance in balance 

Pay rates and business performance need to stay connected. 

If the business is doing well and employees can see that, but their pay never reflects it, resentment can build quickly. On the other hand, increasing wages when the business is already under pressure can create even bigger problems down the track. 

That does not mean you ignore what staff are going through. It means taking a balanced approach. A pay rise may feel like the kind thing to do in the moment, but if it is not financially sustainable, it may not be the right decision for the business or for anyone’s long-term job security. 

2. Take stock of your current pay rates 

Before responding to individual requests, it is worth stepping back and looking at the bigger picture. 

Ask yourself: if you reviewed all pay rates across the business, would they look fair based on role, experience, skills, and responsibility? Or would you find gaps that are more about who negotiated hardest? 

You should be able to explain and justify why each role is paid the way it is. A useful test is to assume everyone in the business could see everyone else’s pay. Would you feel confident standing behind those decisions? If the answer is no, it may be time for a broader review. 

It can also help to put a clearer pay structure in place, including: 

• pay ranges for each role  

• how you assess movement within those ranges  

• when and how you review those ranges to keep pace with inflation and market changes  

Having that framework makes conversations easier and helps staff see that decisions are being made fairly and consistently. 

3. Communicate openly with your team 

When people are under financial pressure, good communication matters. 

Start by acknowledging what staff are dealing with. A little empathy goes a long way. At the same time, it is also okay to share some context about what the business is managing. You do not need to open the books, but giving a general picture can help people understand the bigger picture. 

Listening is just as important. Sometimes employees mainly want to feel heard and taken seriously. A calm, respectful conversation can make a real difference, even if the answer is not the one they were hoping for. 

It is also worth thinking about what support you may be able to offer outside of pay. That could include: 

• flexible working arrangements  

• work from home options where suitable  

• help with transport or carpooling  

• benefits that are lower cost to the business but still meaningful to staff  

Be clear, too, about what would support a future pay increase. Whether that is linked to profitability, performance, or a formal review process, employees should understand what the triggers are. 

And where someone is genuinely struggling, make sure they know what support is available, whether through internal support, external services, or practical workplace flexibility. 

4. If you can help, consider doing so 

If the business is in a position to offer an increase, even a modest one, it may be worth considering. 

Not every pay rise needs to be large to be meaningful. Sometimes a small increase, paired with honest communication and other forms of support, can show staff that you understand the pressure they are under and that you are doing what you can. 

Final thoughts 

There is no perfect one-size-fits-all answer here. Cost of living pressure is real, and so are the financial pressures on employers. The key is to respond thoughtfully. 

A fair approach, clear communication, and a willingness to listen will go a long way. Even when you cannot say yes to a pay rise right now, you can still handle the conversation in a way that builds trust and shows your people they matter.