What is the Cost of Living Bonus for Employees?

By Linda RoperDecember 15, 2022

Inflation is currently at a 40-year-high, leaving people across the nation struggling to keep up with day-to-day expenses. This financial stress is also extending to the workplace, with employers now stepping in to ease the financial burdens of their employees. Man with calculator working out the cost for a car, house and mobile during the cost of living crisisOne thing some organisations are doing to assist their staff is offering a cost of living bonus for employees. In this guide, we explore what the cost of living bonus is, as well as the additional methods employers could explore to ease the stresses of inflation.

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What is a Cost of Living Bonus for Employees?

A cost of living bonus is a payment made by employers to employees to help compensate for the rising costs of living. The aim of the bonus is to offset certain expenses that might not be covered by their salary. Ultimately, it’s an employer’s way of trying to address the discrepancy between wage growth and cost-of-living increases, which are tied to inflation.

It's important to note that a cost of living bonus is different from a performance bonus. Performance bonuses are given based on how well the employee performs their job, while cost of living bonuses are given because of factors outside the employees' control.

Cost of living bonuses are typically paid annually or semi-annually, but can also be paid monthly or quarterly.

A recent study by Randstad found that nearly half (48%) of UK employees want their employer to provide a monthly cost of living bonus.

Thankfully, market research is showing that a large percentage of employers are willing to help out. According to the CIPD's recent job market outlook report, more than a third of businesses (36%) are planning to boost salaries to address the cost of living problem. Randstad statistics also found that almost two-fifths (37%) of UK employees received extra support from their workplace that wasn’t a monetary award to cope with the economic situation.

What Companies are Giving a Cost of Living Bonus?

When it comes to providing a cost of living bonus for employees, a number of well-known companies are leading the charge.

John Lewis has announced that full-time employees will get a one-time cost of living bonus of £500, with part-time employees receiving a smaller sum. Meanwhile, banks such as HSBC and Nationwide are awarding bonuses of £1,500 and £1,200 to their lowest-paid employees.

Amazon has also pledged a special payment of up to £500 to frontline employees, while Virgin Media O2 is providing employees earning up to £35,000 basic pay with cost of living allowances of £1,400 to aid with rising costs.

Here are just some of the other major UK companies giving a cost of living bonus:

  • Lloyds Bank

  • Co-operative Bank

  • Barclays

  • Rolls Royce

  • Bloomsbury

  • Oxford University

  • British Airways

  • Aldi

  • Tesco

  • Marks and Spencer

Is the Cost of Living Bonus from Employers Taxable?

Just like all bonuses, commissions, and tips paid to employees within the UK, the cost of living bonus is subject to certain tax obligations.

HMRC considers cash bonuses to be earnings, therefore you must include them in your workers' regular salary. When giving cash incentives to employees (like a cost of living bonus), you must also deduct National Insurance Contributions and income tax through your payroll system.

Other Ways You Can Support Employees During the Cost of Living Crisis

There are also many ways employers can assist employees during the cost of living crisis, which aren't all subject to tax. Rather than handing out a one-off cost of living bonus, employers might consider the following:

Free or Subsidised Food

Employees queuing at canteen with food traysFood can be costly, and this is one of the areas that individuals are being hit the hardest. As part of a cost of living bonus scheme, companies could provide free or discounted meals to their employees. In doing so, it's important that: 

  • Food is provided on the premises of the organisation

  • The portions are reasonable in size

  • The food arrangement is available to all employees

John Lewis and Waitrose are two businesses who are providing free meals to their staff this winter, as well as doubling their financial aid fund to assist workers with their own expenses.

In recent months, Sainsbury's has also provided employees with "basic food items" throughout their shifts.

Childcare Vouchers

Because childcare can be very expensive, this form of bonus is typically very well-received by staff. By easing the financial burden of childcare costs, employers are able to put extra money back into the pockets of their employees, which can be helpful for paying for other weekly necessities (like food or fuel).

There is a tax-free allowance of up to £55 per week. This is also determined by when you joined a childcare voucher program and the sort of childcare voucher plan you participate in.

Flexible Work Arrangements

Woman working on laptop with dog on her lap benefitting from flexible workingAllowing workers to work from home instead of going into the office can allow them to spend more time with their children, thus reducing childcare and work transportation costs.

Employers may also agree to pay a portion of fuel costs or cover meals and drink expenses if employees need to work away from the office in order to ease the extra financial burdens in these areas.

Pay review

Last but not least, employers can also improve the financial situation of their staff through a pay review. This can be part of their annual review process or be brought forward to help with the current cost of inflation.

According to research, two-thirds of UK businesses are currently receiving more requests from their staff for an increase in pay than previously.

How ExpenseIn Can Help

With the cost of living crisis comes the need to manage expenses more scrupulously than ever before. This is where an all-in-one expense management solution, like ExpenseIn, comes in handy—including for both employers and employees.

With features such as automated policies, advanced approvals, and real-time reporting, ExpenseIn can help employers save additional costs on the manpower and time required to manually handle expenses. These savings can then be redirected into a cost of living bonus payment or scheme for employees.

For employees, ExpenseIn’s ability to submit expenses on-the-go through a mobile app, as well as utilise automatic receipt scanning, means they won’t incur out-of-pocket expenses for long. This, in turn, helps to further reduce some additional financial stress.