With inflation reaching levels not seen in 40 years, asking for a raise or rate increase (if you’re a freelancer) can be tricky. However, I did raise my hourly rate this past month, in part to help me cope better with the increased price of…well, everything. This post will explain how the process worked for me.
A Wee Bit of History
As a Gen Xer, I grew up with painful inflation (double-digit inflation) and double-digit unemployment in the 1970s…a combination of economic factors they called the “misery index.” I lost my first job (paper route) during a week when more businesses went bankrupt than any single week of the Great Depression, the major economic disruption of my grandparents’ lives. My sister and I heard a great deal about that crisis while growing up. As a result, we were raised with an awareness of economics and the need to make prudent decisions in relation to it, the primary ones being: make what money you can, reduce expenses as much as possible, keep your debt low, and learn to do without where necessary.
All this is just to say that this economic situation is not unprecedented; we are simply out of practice adjusting to it. We’ll survive, but it might not be a whole lot of fun.
Setting Your Rate
Because I work as a freelancer, I’ll be using that frame of reference. There might be some differences for full-time employees, which I’ll address.
Prices are up…that’s the definition of inflation. The question is, how much? The article I linked to says 8.6 percent. How long will that last? Will it go up or down? If up, by how much? No one knows. However, if you’re just looking to keep up with inflation, a reasonable place to start would be the current nominal rate.
If you’re using the current financial crisis as an opportunity to also ask for a raise (meaning a rate higher than the rate of inflation), be prepared to justify that number. And be prepared to negotiate.
Differences for Full-Time Employees
After decades of inflation holding at a minimal 2.5-3 percent per year, businesses are not used having to account for higher inflation in their salary deliberations. Depending on their employment arrangements (example: a heavily unionized workforce, with contracts tied to the cost of living), they might be required to provide across-the-board COLA raises every year. Most employers I’ve worked for operate on a strict merit system, regardless of cost of living. Either way, the time to discuss salary increases is more likely at performance review time.
If you don’t get satisfaction, you might have to change employers. However, I’d add a note of caution. Ask yourself: how many years have you accepted a salary increase that was lower than the rate of inflation? If so, why should things be different now? It would be good to have an answer because your manager might ask you exactly that.
As it turned out, asking for a COLA was insufficient for my customer and direct employer. I needed to provide additional written justification for why my services warranted an $X/hour increase.* Fortunately, I have maintained the same rate with the customer for four years, so I had four years’ worth of improvements, achievements, business development, and increased responsibilities I could demonstrate as justification. I also submitted a request for an increase that was just about even with the inflation rate. So it can be done, but it’s better and easier to ask for a raise based on merit and cost of living than cost of living alone.
[* Yes, I’m one of those uptight people who won’t discuss their rate/salary with other people. I had that drilled into my head by parents, family members, and multiple employers. The family reasoning is simply that such talk is impolite, unproductive, and will usually end up in hurt feelings on one or the other side of the conversation. If the person you’re talking to makes more than you, you will find yourself unhappy; if you’re making more than the other person, they might get upset. Employers have different motivations. It is, however, legal in the U.S. to discuss your salary with coworkers, depending on your line of work. I just very much prefer not to. Sorry!]