Cost-of-living pressures and the impact on staffing needs

Cost-of-living pressures remain a defining feature of the current economic environment, shaping both consumer behaviour and business operations across every industry.

For employers, the effects are being felt not only in reduced discretionary spending and shifting demand, but also in workforce dynamics. As household budgets tighten, businesses are increasingly navigating a complex interplay between labour costs, employee expectations and the need to maintain service standards. Understanding how these pressures translate into staffing needs is critical for effective workforce planning in the year ahead.

A shifting economic landscape

Over the past two years, Australian households have faced persistent increases in the cost of essentials such as housing, energy, insurance and groceries. While inflation has moderated from its peak, elevated price levels continue to affect real purchasing power. For most businesses, this translates into more cautious consumer and client spending, with value increasingly prioritised over discretionary purchases.

This slowdown in discretionary spending has implications for staffing. Businesses are closely monitoring demand, activity levels and peak trading periods, adjusting labour allocation accordingly. In sectors more exposed to discretionary consumer spending, softer demand has led to more conservative rostering practices.

Conversely, businesses providing essential goods and services have experienced more stable demand, though often accompanied by increased price sensitivity among customers. The result is a more variable and less predictable operating environment, requiring businesses to adopt a more agile approach to workforce management.

Employee pressures and workforce participation

Cost-of-living challenges are not limited to consumers; they are equally affecting employees across every industry. Many workers, particularly those who are award-reliant or working part-time hours, are feeling the strain of rising expenses. This can influence their availability, engagement and employer expectations.

One observable trend is an increase in employees seeking additional hours or secondary employment to supplement their income. While this may assist employers in filling shifts, it can also lead to fatigue and scheduling complexities, particularly where availability changes frequently. At the same time, some employees are placing greater value on stable hours, predictable rosters and job security, rather than purely casual arrangements.

Employers may also find that financial pressure is contributing to higher turnover in certain cohorts, particularly where competing employers offer marginally better pay or more consistent hours. Retention strategies therefore remain an important focus, with remuneration, flexibility and workplace culture all playing a role.

Balancing labour costs with business sustainability

Labour remains one of the largest controllable expenses for most businesses. In an environment where operating costs more broadly are increasing – including rent, utilities and supply chain expenses – managing wage costs is under heightened scrutiny. At the same time, employees facing financial pressure are more sensitive to pay rates and conditions. Businesses are therefore required to strike a careful balance between maintaining sustainable cost structures and offering competitive employment conditions that support retention and productivity.

This tension is particularly evident in the context of wage increases flowing from instruments affected by the Annual Wage Review. Any uplift in award wages has a compounding effect across classifications, penalty rates and superannuation. While these increases can provide meaningful support to employees, they also place additional pressure on margins, especially for small and medium-sized businesses.

As a result, some businesses are reassessing their staffing models, including the mix of full-time, part-time and casual employees, as well as the allocation of supervisory roles. Others are investing in training and multi-skilling to ensure that existing staff can operate more efficiently across different functions.

Changing expectations around flexibility and value

Cost-of-living pressures are also influencing how employees perceive the overall value of their employment. While wages are a central consideration, non-monetary factors such as flexibility, roster predictability and workplace support are gaining importance. For example, employees managing higher living costs may prioritise roles that align with childcare, study or transport arrangements, particularly where fuel and commuting costs have increased. Predictable scheduling can assist employees in budgeting and planning, reducing financial uncertainty.

Employers who are able to offer consistent hours or flexible rostering arrangements may find themselves better positioned to attract and retain staff, even in the absence of above-award pay rates. Clear communication around rosters, overtime opportunities and shift availability is also increasingly important in maintaining employee trust and engagement.

Operational implications for employers

From an operational perspective, cost-of-living pressures are driving a more deliberate approach to staffing decisions. Businesses are increasingly relying on data to inform rostering, using historical activity patterns, real-time operational information and labour cost ratios to optimise staffing levels. Shorter, more targeted shifts are becoming more common in some settings, particularly where demand is concentrated around specific times of the day or week. While this can improve efficiency, it must be balanced against employee preferences for longer or more stable shifts.

Technology is also playing a role, with workforce management systems enabling more precise scheduling and reducing administrative burden. In some cases, automation and self-service solutions are being explored as a way to supplement staffing, particularly in routine, transactional and administrative functions.

However, customer experience remains a key consideration. Staffing levels that are too lean can negatively impact service, sales and brand perception. Businesses must therefore ensure that efficiency measures do not come at the expense of the customer or service experience, which remains a critical differentiator in a competitive market.

Practical considerations for workforce planning

In navigating these challenges, there are several practical steps businesses can take to align staffing with current economic conditions:

• Regularly review sales and labour data to identify trends and adjust rosters proactively
• Engage with employees to understand their availability, preferences and financial pressures
• Model different demand scenarios to ensure staffing levels remain flexible and responsive
• Invest in training and development to build a more adaptable and multi-skilled workforce
• Assess the balance between casual and permanent employment to support both flexibility and stability
• Monitor employee turnover and exit trends to identify underlying issues and inform retention strategies

Taking a structured and informed approach to workforce planning allows businesses to respond to changing conditions without compromising operational stability.

The bottom line for employers

Cost-of-living pressures are reshaping both sides of the employment equation: how consumers and clients spend, and how employees work. For businesses, this creates a dual challenge of managing tighter margins while supporting a workforce that is itself under financial strain. Staffing decisions are no longer purely about matching headcount to customer demand. They now involve a broader consideration of employee needs, engagement and long-term sustainability.

Businesses that take a proactive and balanced approach – combining data-driven decision-making with a clear understanding of workforce expectations – will be better positioned to navigate this environment. As economic conditions continue to evolve, flexibility and foresight will remain key. The ability to adapt staffing models while maintaining a motivated and capable workforce will be central to achieving both operational efficiency and positive outcomes for customers and clients across all industries.

How Citation Group can help

Citation Group has supported Australian businesses for more than 30 years, since its founding as FCB Group in 1993, and now works with over 25,000 businesses across Australia. Our team fields more than 40,000 advisory calls a year, and our clients save up to 600 hours a year on HR Admin.

Through Citation HR, Citation Legal, enableHR, and foundU, we cover employment contracts, award classification, payroll, onboarding, and ongoing compliance monitoring. Whether you’re hiring your first employee or managing a team of 50, our goal is the same: help you stay compliant and keep growing. Contact us here to see how we can help.