How benefit teams can minimize the impact of inflation on employees in 2026

Salaries look good on paper. But when employees are paying more than ever for groceries, watching their rent climb year over year, and spending more just to commute to work, the number on their paycheck starts to feel a lot smaller than it used to be. That disconnect is creating a quiet crisis inside a lot of organizations right now.

The tricky part for benefits and total rewards leaders is that the natural response, raising salaries, is expensive and almost impossible to sustain at the pace inflation moves. Companies that rely on comp adjustments alone often find themselves lagging behind, approving increases that were already outdated by the time they hit payroll.

What's getting less attention is the role that benefits design plays in softening inflation's blow. When benefits are structured to address what employees are actually spending money on, they become one of the most efficient tools in the employer's toolkit. This article covers the strategies employers are using right now to protect employee purchasing power without blowing up their budgets.

Key takeaways

• Inflation doesn't just hurt employee wallets. It quietly erodes the perceived value of your total compensation package, even when nothing has technically changed.
• Cost-of-living adjustments and salary increases help, but they're rarely enough on their own and often arrive too late to make a real difference.
• Flexible, employer-funded spending accounts let employees direct dollars toward what inflation is hitting hardest for them specifically, whether that's groceries, childcare, commuting, or housing.
• Benefits designed around real everyday expenses have a stronger effect on financial stress and retention than generic perks that don't touch what employees are actually worried about.
• If your current benefits program isn't keeping pace with inflation, it may be time to rethink how it's structured. Schedule a demo today to see how Forma helps employers deliver real purchasing power to every employee.

What rising costs actually mean for your workforce

Inflation is often discussed as an economic headline, but inside your organization, it shows up in very personal ways. Employees making the same salary as two years ago are functionally earning less. That reality shapes how they feel about their jobs, their employers, and whether they're actively looking elsewhere.

Before jumping to solutions, it's worth looking at what the data actually says about how inflation affects the people on your payroll.

The gap between salary increases and real purchasing power

Nominal wage growth and real wage growth are two different things, and that gap matters enormously for employee satisfaction. When wages rise 4% but inflation runs at 6%, employees are worse off than they were the year before, even after receiving a raise. 

Most employers benchmark their comp increases annually. Inflation doesn't work on an annual schedule. Prices at the grocery store, the gas pump, and the childcare center shift month to month, and employees feel every one of those shifts in ways that a year-end adjustment can't fully address.

The result is a compensation package that looks competitive on paper but feels inadequate day to day. That perception problem becomes a retention problem faster than most finance teams expect.

How financial stress affects performance and retention

Financial stress is one of the most consistent predictors of disengagement at work. According to PwC's Employee Financial Wellness Survey, 57% of employees say money is the number one cause of stress in their life. That's more than half of a financially stressed workforce bringing diminished focus to work every single day.

The effects go beyond productivity. Financial pressure touches almost every dimension of the employee experience, and the downstream costs to the business add up quickly.

• Reduced focus: Employees preoccupied with money concerns bring divided attention to their work, leading to more errors and slower output
• Increased absenteeism: Financial stress is closely linked to physical and mental well-being issues that result in more sick days and unplanned absences
• Lower discretionary effort: Stressed employees tend to do what's required and little more, pulling back the extra effort that drives innovation and team performance
• Presenteeism: Employees show up physically but disengage mentally, which is often harder to detect and more costly than absenteeism
• Active job searching: Financially stressed employees are significantly more likely to be looking for higher-paying roles elsewhere, even when they appear engaged
• Accelerated burnout: Chronic financial anxiety compounds workplace stress and speeds up the path to full burnout and resignation
• Reduced loyalty: Employees who feel their employer isn't helping them manage cost-of-living pressure are less likely to feel a strong sense of commitment to the organization
• Higher replacement costs: When financially stressed employees leave, the cost of backfilling their roles typically runs 50–200% of annual salary, dwarfing whatever retention investment would have helped

This is exactly why improving employee well-being has become a financial strategy, not just a cultural one. Employers who address financial stress through targeted benefits see measurable returns in retention, engagement, and productivity.

Strategies employers use to minimize inflation's impact on employees

There's no single lever that neutralizes inflation for your workforce. What works is a layered approach that addresses multiple pressure points at once. The employers seeing the strongest results aren't necessarily spending more overall. They're spending more intentionally, directing dollars toward the specific expenses that inflation is actively making worse.

Here's what that looks like in practice across the benefits categories that matter most right now.

Cost-of-living adjustments and off-cycle salary reviews

COLAs are a legitimate tool, but they work best when paired with something else. A blanket salary adjustment applied uniformly across the workforce doesn't account for the fact that inflation hits differently depending on where someone lives, how they commute, or whether they have dependents. An employee in Austin and an employee in rural Tennessee are not experiencing the same cost pressures, even in the same role.

Off-cycle benefit adjustments offer a more targeted option. Rather than waiting for annual review cycles, employers can deploy additional spending account funds mid-year to address specific cost spikes as they happen. This approach is faster, more flexible, and doesn't permanently increase fixed labor costs the way a salary adjustment does.

When thinking about how to help employees manage the impact of inflation, the most effective strategies tend to combine a modest base compensation review with spending account enhancements that let employees apply dollars where their personal inflation is highest.

Expanding food and grocery benefits

Grocery and food costs are where inflation is often most visible and feels personal. Employees experience it every single week, which means it weighs on them constantly in a way that an abstract salary figure doesn't. Employers who acknowledge that and respond with food-related benefits send a signal that carries real weight.

Food stipends with cost-of-living guidelines give employers a structured way to fund grocery and meal expenses through a spending account. Employees use funds for what they actually buy, rather than being locked into a catered lunch program or a specific vendor.

The range of food and grocery benefits employers can deploy includes:

• Grocery reimbursement wallets: LSA sub-accounts funded specifically for grocery and household staple purchases
• Meal stipends: Monthly allowances for lunches, whether remote or in-office
• Food delivery accounts: Pre-funded accounts for delivery services that integrate with an existing benefits platform
• Subsidized on-site meals: For employers with office-based populations, subsidized cafeteria options reduce daily out-of-pocket costs
• Eligible expense expansion: Broadening what qualifies under existing LSAs to include grocery categories employees weren't previously able to use

Commuter and remote work support

Transportation costs were among the first expense categories to spike when inflation accelerated. Whether employees are driving to an office or equipping a home workspace, the cost of getting work done has gone up, and many employers haven't adjusted their benefits to reflect that.

Pre-tax commuter accounts are one of the most tax-efficient benefits available for addressing this. Employees reduce their taxable income by setting aside pre-tax dollars for transit or parking, and employers save on payroll taxes for every dollar that goes through the account. It's a relatively low-cost benefit that delivers visible, tangible value to employees who commute.

For remote and hybrid workers, home office and remote work spending accounts cover eligible expenses like internet service, office furniture, and equipment. Supporting employee productivity in remote settings through these accounts is especially effective because it addresses a recurring cost employees carry every month, not just a one-time purchase.

Childcare and caregiving benefits

Childcare costs have outpaced general inflation for years. For working parents, this is one of the most financially punishing expenses in the household budget, and it's one area where employer support can genuinely change someone's financial picture.

Dependent care FSAs allow employees to set aside pre-tax income for eligible childcare expenses, including daycare, after-school programs, and summer camp. The annual contribution limit provides meaningful relief, and the tax savings alone can translate to hundreds of dollars a year back in an employee's pocket.

LSA caregiving wallets expand that further. Where dependent care FSAs are governed by IRS eligibility rules, caregiving spending accounts can be configured to cover a broader range of family support needs.

Options in the caregiving benefits category include:

• Dependent care FSAs (DCFSAs): Pre-tax contributions for qualified childcare expenses
• LSA caregiving wallets: Employer-funded, flexible accounts that cover childcare and elder care costs beyond what FSAs allow
• Backup childcare stipends: Emergency coverage for days when regular arrangements fall through
• Elder care reimbursement: Support for employees managing care costs for aging parents or relatives
• Family support spending accounts: Broader accounts that combine caregiving categories under one employer-funded balance

Financial wellness as a standalone benefit

Financial stress doesn't always originate at the grocery store. For a large share of the workforce, student loan balances, emergency fund gaps, and the inability to build savings are the underlying drivers of financial anxiety. Inflation makes all of those things worse by shrinking the discretionary income people would otherwise use to make progress on them.

Employer student loan repayment programs have become a meaningful differentiator for employers in industries where younger talent carries significant debt loads. Contributing even modest monthly amounts toward loan balances adds up quickly and addresses a source of stress that compensation adjustments alone don't touch.

Financial coaching, access to emergency savings matching, and financial planning resources round out a financial well-being offering that signals genuine commitment to employee economic stability. When employees feel their employer actually sees the financial pressure they're under and has built something to help, that connection matters for retention.

Building a benefits program that adjusts with the cost of living

Responding to inflation with a one-time salary bump or a single added perk is a short-term fix. What the best-in-class employers are doing is redesigning their benefits structure so that it has built-in flexibility.

That kind of adaptability comes from how you design the underlying spending account architecture.

Using Forma to support employees through inflation

The challenge most HR teams run into is operational. Deploying multiple benefit types across a distributed, diverse workforce, each with different eligibility rules and different employee needs, becomes administratively unmanageable quickly. That's especially true when you're trying to respond to something as fast-moving as inflation.

Forma is a flexible lifestyle benefits platform built to solve exactly that problem. Through a single platform, employers can configure multiple spending account wallets, each designed for a specific category like groceries, commuting, caregiving, or financial wellness, and fund them separately based on what their workforce actually needs right now. Employees spend through the Forma Visa Card or a simple claims process, and HR teams get real-time visibility into utilization without juggling a patchwork of point solutions.

Instead of guessing which benefits are helping, Forma's admin dashboard shows you exactly where employees are spending, so you can adjust funding allocations as cost pressures shift. That's the kind of responsiveness that makes a benefits program genuinely useful in an inflationary environment rather than just well-intentioned.

Ready to build a benefits program that actually keeps pace with what your employees are spending? Schedule a demo today and see how Forma makes it operationally simple.

Using LSA wallets to let employees decide where the money goes

Inflation is not a uniform experience. An employee in a high-cost-of-living metro with a long commute and two kids in daycare is dealing with completely different financial pressure than a remote employee in a lower-cost city with no dependents. A single benefits structure applied to both of them will underserve at least one of them, probably both.

Lifestyle spending accounts solve this by letting employees direct employer-funded dollars toward the expenses that matter most to them. Rather than predetermining which categories matter, employers set the total funding and the eligible expense categories, and employees self-select based on their own situation.

LSA cost-of-living adjustment guidelines take this further by giving HR teams a structured methodology for adjusting account funding based on geography, family status, or role level. That kind of precision turns a generic benefit into something that feels genuinely personal.

Factors worth considering when structuring inflation-aware spending accounts include:

• Geography: Cost of living varies significantly between metros, states, and countries
• Family composition: Employees with dependents face compounded cost pressures from childcare, food, and housing
• Commute type and distance: On-site employees face different transportation costs than remote workers
• Role level: Alignment between benefit value and compensation band affects how meaningful the benefit feels
• Remote vs. hybrid vs. in-office status: Work arrangement affects which expense categories are most relevant

Benchmarking your benefits against what the market is offering

If your benefits package hasn't changed but inflation has been running at elevated levels for two or three years, you are effectively offering less than you were before, even if nothing has been cut. Employees may not always articulate it that way, but they feel it when they compare notes with peers at other companies.

Benchmarking your employee benefits against peer organizations gives you the data to know where you stand and where there's a gap. It also gives you the internal business case for making changes, which matters when you're working to get budget approved by finance or leadership.

Forma's 2026 LSA benchmarking insights provide a current look at what employers in various industries are funding, which categories are growing, and what utilization rates look like across programs. That kind of data is invaluable when you're trying to design a benefits program that stays competitive rather than one that slowly falls behind.

How Forma helps employers close the inflation gap

Inflation creates a benefits problem that traditional program designs weren't built to handle. Static, one-size-fits-all packages can't respond quickly, can't target the expenses that matter most to individual employees, and create real administrative burden when HR teams try to adjust them. The result is a benefits program that looks fine on paper but doesn't actually meet employees where their financial stress lives.

Forma was built for exactly this kind of complexity. The platform lets employers configure flexible spending accounts across multiple categories, fund them in ways that reflect real cost-of-living differences, and give employees the autonomy to spend on what matters most to them. HR teams get streamlined administration, compliance support, and the analytics they need to keep programs responsive as economic conditions change.

Employers using Forma aren't reacting to inflation after it's already damaged morale and increased turnover. They're building the kind of flexible benefits strategy that stays relevant no matter what the economy does next.

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See what a benefits program built for today's cost pressures looks like. Schedule a demo today and let's build something that works for your workforce.

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Frequently asked questions about inflation and employee benefits

How does inflation affect employee benefits?

Inflation reduces the real value of fixed benefits over time. A $100 monthly wellness stipend buys less than it did two years ago. When benefit dollar amounts stay static while costs rise, employees experience a net reduction in their benefits value even if nothing has officially been cut. Employers who don't adjust risk having a competitive package on paper that feels inadequate to the employees receiving it.

What benefits help employees the most during periods of high inflation?

Benefits tied to everyday expenses have the greatest impact. Grocery and food stipends, pre-tax commuter accounts, childcare support, and flexible spending accounts that employees can direct toward their biggest cost pressures tend to deliver the most relief. Financial wellness resources like student loan repayment assistance also address the deeper financial stress that inflation tends to worsen.

Are cost-of-living adjustments required by law?

In the United States, private employers are generally not legally required to offer cost-of-living adjustments outside of certain public sector or union contracts. Some states index minimum wage to inflation, but COLAs for salaried employees remain discretionary. Employers offer them as a retention and equity measure rather than a legal obligation.

What is a lifestyle spending account and how does it help with inflation?

A lifestyle spending account is an employer-funded spending account that employees can use across a range of eligible expense categories defined by the employer. Unlike HSAs or FSAs, LSAs are not tied to IRS eligibility rules, which gives employers flexibility to cover things like groceries, fitness, caregiving, home office costs, and more. That flexibility makes LSAs particularly useful during inflationary periods when employees need support across multiple expense types simultaneously.

How can employers offset inflation without increasing salaries?

Targeted benefits are the most practical option. Pre-tax accounts reduce employees' taxable income, effectively increasing take-home pay without raising gross wages. Employer-funded spending accounts for high-inflation categories like food, childcare, and transportation add direct purchasing power. Financial wellness programs address the stress of underlying financial obligations. Together, these create a meaningful compensation boost at a lower cost than equivalent salary increases.

What's the difference between a cost-of-living adjustment and a merit increase?

A cost-of-living adjustment is designed to maintain existing purchasing power by accounting for rising prices. It's not a reward for performance. A merit increase is tied to individual performance and is designed to recognize contribution and growth. In practice, many employers conflate the two in annual review processes, which can cause inflation-related compensation gaps to go unaddressed for employees who receive merit increases that don't fully account for rising costs.

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This article is for informational purposes. Forma is not engaged in the practice of law. Nothing contained herein is intended as tax or legal advice nor to replace tax or legal advice from counsel. If you need tax or legal advice, please consult with counsel or a certified tax professional.

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