Businesses Prioritizing Wages, Benefits, While Cutting Other Expenses

Small and mid-sized U.S. businesses acknowledge concerns about inflation and the possibility of a recession, but they also want to avoid taking any action that would negatively impact employees, a new survey finds. 

Even as recessionary pressures rise and inflation persists, the latest Principal Financial Well-Being Index (WBI) found that 64% of businesses report financial improvement compared to this time last year. Most businesses also consider themselves growing or stable. Large businesses were more likely to say they are growing (61%), compared to 46% of small businesses. Nearly half (49%) of small businesses consider themselves stable compared to 36% of large businesses.

Both employers and employees are feeling economic pressures, according to the findings. The outlook on the U.S. economy declined last quarter, as only 19% of businesses say the U.S. economy is growing. While larger businesses are still significantly more optimistic about the economy, both the number of small and large businesses that said the economy is growing decreased from last quarter. Over half (54%) of small businesses believe the economy is declining. 

Employers and employees alike also rated inflation, a potential recession, and the cost of healthcare as their top three concerns. In fact, most respondents believe a recession is likely. Principal’s survey found that 65% of employers and 73% of employees believe it’s “somewhat or very likely” a recession will happen in the next six months. 

Employer Views 

Accordingly, both employers and employees are taking steps to reduce spending and increase savings. When asked about steps they will take to prepare for a recession, businesses are focusing on steps to reduce spending and increase savings:

• 35% have taken steps to reduce operational costs;
• 35% of businesses indicated an increase in prices and services; and
• 31% report increasing cash reserves.

To combat inflation, businesses are taking similar actions, including increasing their prices, cutting down on operating costs and reducing spending on inventory.

While all businesses agree that they plan to avoid any action that would negatively impact employees—such as reducing salaries, benefits, office space or job security — smaller businesses indicate a driving sentiment to protect employees from impact. 

To that end, employers with less than 500 employees indicated affirmatively they would not take the following actions to prepare for a recession:

• reduce salaries of employees (55%);
• lay off staff (49%);
• reduce benefits offered (47%); and
• reduce employer-paid portion of benefits offered (45%). 

“Small businesses learned a lot from the 2008 recession, and many learned they can make adjustments that will minimize the impact on salaries or staff during future periods of economic stress,” says Amy Friedrich, president of U.S. Insurance Solutions at Principal. “Small businesses are dedicated to their employees. We saw that during the pandemic, and I think we’ll see the same creativity and resiliency if pressures mount in the near-term.”

In fact, employers largely plan to keep benefits the same or possibly increase them. When asked whether they plan to change employee benefits in the next 12 months, 29% of employers (driven by large employers) indicated they plan to increase retirement benefits, while 67% said they plan to keep them the same and only 5% said they plan to decrease them. Similarly, 31% of employer respondents plan to increase financial wellness benefits, while 63% do not plan to make any changes and only 6% said they planned to decrease such benefits. 

Employee Views

Meanwhile, employees echo employers’ cautious behaviors, as they’ve begun to tighten their wallets by decreasing spending and maintaining savings. They also would be motivated to seek a better path forward in a recession. 

According to the findings, saving for retirement would remain a top priority for employees if a recession were to ensue: 

• 45% of employees said they will not decrease saving for retirement;
• 40% of employees would plan to take on a side job to generate income; and
• 37% of employees would plan to search for a new job with better pay and/or benefits. 

The latest wave of Principal’s quarterly pulse survey was conducted by Dynata from July 7-20, 2022, with a total of 500 business owners, decisionmakers and business leader participants who work at companies with 2–10,000 employees, and a total of 200 employee participants.