This cost-of-living adjustment, or COLA, is a percentage increase in income, usually applied to wages and salaries, and benefits (including union agreements, executive contracts, and retiree benefits). For example, if a contract describes that the salary will increase by 2% per year, but the inflation rate is 3%, then there is no COLA. When workers are faced with reduced funding and increased needs, they sometimes request a Cost-of-Living Adjustment (COLA). A COLA helps extend the value of their paychecks. It may be a percentage increase or an actual dollar cost tied to the Consumer Price Index or other metrics.

Living expenses can sometimes increase after a transfer, resulting in a decrease in disposable income. This often limits employees’ ability to relocate. To encourage transfers, offer a cost-of-living adjustment to offset increased living expenses. This simple solution will ensure that your valued employees are not deterred by their living expenses and will allow them to relocate for their career advancement.

COLAs are based on the Consumer Price Index (CPI), the federal government’s official measurement of inflation. When prices go up, you’re getting less for your dollar—and exactly what you have saved can be worthless over time. That’s why we take action to ensure that your hard-earned COLA savings are worth as much tomorrow as they are today—and every day.

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