A cost-of-living adjustment (or COLA) is an increase in the benefits or pay a person receives to offset the pressure of inflation. If a person’s income stays stable, they have less purchasing power as the prices of goods and services increase. In other words, they’re getting paid less relative to the cost of living. Thus, a cost-of-living adjustment is meant to address and counteract this change.
Do companies have to offer cost-of-living adjustments?
Unless it’s required by law, it’s generally up to each company to decide whether to offer this benefit and, if so, how much to provide as a cost-of-living adjustment.
As recently as 2010, offering cost-of-living adjustments was uncommon among employers. For instance, only around 10% of U.S. employers provided these adjustments to their employees. More recently, however, employers have become much more likely to provide cost-of-living adjustments, particularly in light of the tight labor market. In 2023, 80% of employers plan to provide base pay increases due to inflation. That increase in the number of employers willing to offer cost-of-living adjustments is a significant change in the labor market.
Note that a cost-of-living salary adjustment does not go to a single employee or just a group. For it to be a true cost-of-living adjustment, the employer must offer this raise to every employee—not just a select few. COLA is not merit-based or related to employee performance.
What are the benefits of providing cost-of-living adjustments?
Companies trying to decide whether to provide COLA must weigh the benefits and costs of doing so. The clear cost of offering these benefits is the financial outlay required. Providing cost-of-living adjustments means paying employees more and having less money to spend in other areas.
However, the following benefits of providing cost-of-living adjustments may offset this financial strain:
Increased employee loyalty: Holding on to great employees can be challenging, but offering benefits like cost-of-living adjustments will inspire greater company loyalty in those employees and make them more likely to stick around.
Better morale: Employers who offer cost-of-living adjustments show employees that they care about their concerns and livelihoods. This will boost morale around the company.
Greater productivity: COLA alleviates some financial stress and strain for employees, making them better able to focus on their work. Output and productivity will also likely increase for workers who receive these pay increases.
All these benefits help contribute to the success of the company. Employers must decide for themselves whether the benefits of giving these pay increases are strong enough to outweigh the costs.
How is the cost-of-living adjustment calculated?
Each company that decides to offer a cost-of-living adjustment is free to calculate the adjustment using any method of their choosing. They may, for instance, take into account the consumer price index, the inflation rate, or other indicators.
Since companies aren’t obligated to provide a cost-of-living adjustment, there’s no required way to calculate it. The amount they offer as a salary adjustment for the cost of living may change yearly, but it may also stay the same. These decisions are all within the purview of the employer.
Oyster is a global employment platform designed to enable visionary HR leaders to find, hire, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
A cost-of-living adjustment (or COLA) is an increase in the benefits or pay a person receives to offset the pressure of inflation. If a person's income stays stable, they have less purchasing power as the prices of goods and services increase. In other words, they're getting paid less relative to the cost of living.
COLA is an annual cost-of-living increase that begins the second calendar year after retirement and helps your retirement benefit keep up with the rate of inflation. Eligible retirees, including survivors and beneficiaries who receive a monthly benefit, receive COLA on their May 1 retirement check.
Since 1975, Social Security's general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index. We call such increases Cost-Of-Living Adjustments, or COLAs.
COLAs are increases in compensation intended to help employees maintain the value of their compensation against inflation. These increases are not viewed as merit increases resulting from good job performance but should be considered a way to help employees maintain their earning power.
A cost-of-living adjustment (COLA) is an increase in benefits or salaries to counteract inflation. Inflation for the Social Security COLA is calculated annually using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
To calculate a COLA, the SSA compares the average CPI-W for the third quarter of the current year to the average CPI-W for the third quarter of the last year when a COLA was approved. If the average CPI-W has increased by more than a tenth of 1%, the SSA will approve a COLA, meaning it will increase benefits.
A cost-of-living adjustment (COLA) is an increase made to Social Security and Supplemental Security Income (SSI) to counteract the effects of rising prices in the economy—called inflation.
The COLA is determined by the percentage increase, if any, between the average 3rd quarter Consumer Price Index (CPI) of the current year over the average 3rd quarter (CPI) of the prior year. In the event of a decrease in the CPI, the COLA will not be negative, but will be zero.
You give annual salary cost of living adjustments, so you raise each employee's wages by 6%. So, if you have an employee who earns $45,000 per year, you would add 6% to their wages.
The three causes of inflation are demand-pull (when the demand for goods and services is greater than the supply, putting upward pressure on prices), cost-push (when the total supply of goods and services that can be produced falls), and built-in inflation, also known as inflation expectations.
An average rate of inflation can be calculated for each year: In 2023, the average rate of inflation was 4.1%. In 2022, the average rate of inflation was 8.0%. In 2021, the average rate of inflation was 4.7%.
To prevent inflation from significantly eroding the value of Social Security benefits for retirees, the government adjusts the amount of benefits, known as cost-of-living adjustments. COLAs are not mandatory and do not occur every year.
A good pay raise ranges from 4.5% to 5%, and anything more than that is considered exceptional. Depending on the reasons you cite for a pay raise and the length of time that has passed since your last raise, you could request a raise in the 10% to 20% range.
How Long Should You Work Without A Raise? Every worker is different but most find that they should expect a raise every 1-2 years. However, comparing your salary against those of your coworkers and industry as a whole will highlight whether you are underpaid or not.
A raise is typically merit-based and reflects an employee's performance or contribution to the company. On the other hand, a cost of living adjustment (COLA) is an increase in an employee's salary or hourly wage designed to keep their spending power consistent with inflation or other economic factors.
There is no legal requirement for employers to provide cost-of-living adjustments. However, employees who are part of a union may have COLA pay as a part of their contract. For most employers, however, cost-of-living adjustments are entirely discretionary.
It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
Take your monthly payment and multiply it by 8.7% to calculate your COLA increase for 2023. Then add this number to the amount you were receiving in 2022. This will show you the new amount you'll receive in 2023.
Introduction: My name is Clemencia Bogisich Ret, I am a super, outstanding, graceful, friendly, vast, comfortable, agreeable person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
