As inflation hits a record high in Canada, employers are helping workers weather the storm through various benefits and compensation offerings, according to several experts.

In October, the Canadian inflation rate increased year over year by a record 4.7 per cent, the largest increase since February 2003, according to Statistics Canada. The Bank of Canada is forecasting the rate to remain elevated for much of 2022 before easing back to roughly two per cent in the fourth quarter.

Read: How employers can tweak benefits offerings amid rising inflation

With employers looking to balance their budget limitations with employee support, many are turning to measures such as discount programs for car insurance, wellness, daycare and tutoring, says Michele Boisvert, senior health consultant at Mercer. For plan sponsors, she notes, inflation will have an uneven impact on different aspects of their benefits offerings and, in some cases, it isn’t the primary driver of cost increases.

“For medical and dental benefits, we’re seeing some insurers using higher trend factors in setting the premiums for 2022. But I don’t think the higher trend factors are entirely a function of inflation and are mostly [increasing] because insurers expect utilization of some services to return to pre-pandemic levels, such as paramedical, vision and dental.

“We also have to remember prescription drugs make up 60 per cent of medical costs. New specialty drugs have a much higher impact than general inflation. We’re seeing some provinces adopt biosimilar policies to reduce the cost of drugs and many insurers are following suit. We think it could even put a downward pressure on drug costs.”

Read: Survey finds cost of employer benefits in Canada set to rise 7% in 2022

For employers offering life insurance and long-term disability, a potential interest rate increase could result in decreased employer liabilities, adds Boisvert, which could potentially translate to lower premiums at some point.

Shane Keyser, head of benefits consulting at Arthur J. Gallagher & Co., says employers are also leveraging their existing resources that can improve financial, mental and emotional well-being. “There’s no question that financial and organizational well-being have never been more important. In addition to the financial aspects, it’s important for employers to look at emotional and mental well-being resources and how those can help employees deal with the stresses of additional financial challenges.”

While it’s unlikely the current inflation rate will have a significant immediate impact on pensions and retirement plans, he says, long-term elevated inflation is a consideration for employers, particularly those offering capital accumulation plans.

Read: Quantitative easing windup, inflation likely to benefit pension plans: expert

“If inflation remains high in the longer term and increased market returns due to increased interest rates don’t offset the pressures of inflation, then we could see employers looking at the need of increasing their contributions. We might also see employees choosing to work longer [and] industries that don’t typically offer these programs might take a closer look at retirement savings programs if inflation continues. . . .  However, those are much longer-term aspects [of inflation] and would take time.”

Conversely, if interest rates rise in response to inflation, Boisvert says it could decrease liabilities associated with a defined benefit plan, potentially leading to decreased costs for plan sponsors.

While a recent Mercer survey found 59 per cent of employers are factoring inflation into pay rises for 2022, the average increase among these companies is projected at 3.3 per cent compared to 3.1 per cent among employers that aren’t accounting for inflation, says Elizabeth English, a principal at Mercer. With prices of consumer goods rising amid heightened inflation, she adds it’s critical for employers to communicate about future increases sooner rather than later.

Read: Wages set to rise 2.7% in 2022 as inflation hits new high, says survey

“The change management piece is going to be incredibly important, particularly for hourly workers. If these workers hear that the price of butter is going up 15 per cent and their wages are only increasing by three per cent, setting that expectation now so there’s no surprises when these increases happen is important. It’s also important to target [wage] increases to the critical jobs.”

Jonathan Foster, head of the compensation consulting practice at Gallagher, says a recent survey by the consultancy found employers are looking at a median salary increase of 2.5 per cent, with just 12 per cent of respondents maintaining a salary freeze into 2022. However, he says offsetting the impact of inflation through wage increases is just one piece of the retention puzzle, amid an increasingly competitive labour market.

“Compensation is more than just money [and] employers are differentiating themselves based on the total employee proposition. . .  so it’s about the benefits and retirement program and what the employer can do for the individual and their family. . . . A 2.5 per cent raise isn’t going to keep the top talent when they can walk across the street and get a 10 per cent or 15 per cent increase. [Employers] can’t do it all [to keep talent] through financial elements, so it’s about using those other pieces.”

Read: Employers raising wages, offering bonuses amid labour shortages: surveys