The COLA Conundrum
Inflation makes everything cost more—rent, groceries, gas. A cost-of-living adjustment (COLA) helps workers keep up. But what if your boss refuses? Is that just unfair, or could it actually be illegal? Let’s dive into the facts.
What Is a COLA, Anyway?
A COLA is a wage bump that offsets inflation, ensuring that your paycheck maintains its same buying power. It’s typically tied to indexes like the Consumer Price Index (CPI). Without one, workers’ real income erodes over time.
Federal Law Doesn’t Require COLAs
The Fair Labor Standards Act (FLSA) sets a federal minimum wage of $7.25 per hour (unchanged since 2009). But it does not mandate COLAs. Employers only need to keep pay at or above minimum wage—nothing more.
Social Security Uses COLAs Every Year
Retirees get them even if most workers don’t. In 2023, Social Security recipients saw an 8.7% COLA—the highest in four decades—because inflation spiked. Private employers are under no such obligation.
Union Contracts Often Guarantee Them
Unions frequently negotiate COLAs into collective bargaining agreements. For example, the United Auto Workers secured raises and COLAs in their 2023 strike settlement. Without a union, employees typically can’t force automatic increases.
Inflation’s Brutal Impact on Paychecks
In 2022, U.S. inflation hit 9.1%, a 40-year high. Yet the average private-sector raise was only 4.4%. That means millions effectively took a pay cut, even though their nominal wage rose.
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The “Hidden Pay Cut”
When inflation outpaces wages, workers lose ground. A $50,000 salary in 2020 has the same buying power as about $43,000 in 2023. Without a COLA, your lifestyle shrinks—even if your paycheck doesn’t.
Employers Often Use Bonuses Instead
Some companies hand out one-time inflation bonuses instead of raising base pay. While nice, it doesn’t compound over time. A permanent COLA locks in higher earnings every year.
Why Bosses Say No to COLAs
Employers will argue that guaranteed COLAs raise long-term labor costs, especially during times of high inflation. Instead, they often prefer things like “merit-based raises” or “market adjustments,” even though those (as many employees know) often lag behind inflation.
Legal Exceptions: Contracts Matter
If your boss promised in writing—like in an employment contract or employee handbook—that you’ll receive COLAs, failing to deliver could most definitely be a breach of contract. Otherwise, it's unfortunate but true, that the law doesn’t require them.
Public vs. Private Jobs
Federal employees, retirees, and Social Security recipients often see automatic COLAs. In contrast, private-sector workers rely on employer discretion, which makes stagnant wages far more common.
Do Other Countries Do It Better?
Yes. In countries like Belgium and Luxembourg, wage indexation laws automatically adjust salaries to inflation. The U.S. leaves COLAs largely up to employer goodwill—or union bargaining power.
State-Level Protections Are Rare
A handful of states adjust minimum wage for inflation. For example, Colorado’s minimum wage increased 8.7% in 2023. But for most private-sector workers above the minimum wage, COLAs aren’t mandated.
xiquinhosilva, Wikimedia Commons
What the Experts Say
“The law doesn’t require COLAs—but failing to adjust pay in high inflation years is essentially giving employees a pay cut,” says labor economist Heidi Shierholz of the Economic Policy Institute.
U.S. Department of Labor, Wikimedia Commons
Negotiating for One Yourself
Employees can push for a COLA by bringing data: local inflation rates, average raises in their industry, and cost-of-living trends. Timing is key—performance reviews or budget season often give you the best shot.
Show the Numbers to Your Boss
Instead of just saying, “I need a raise,” show the math. Example: “Inflation was 6.5% last year. A COLA of that size on my $60,000 salary would be $3,900. Without it, I’m losing ground.”
If They Still Say No
You may not have a legal case, but you can ask about alternatives—like extra vacation, remote work, or a performance-based raise. It’s not a COLA, but it may soften the blow.
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When It Becomes Illegal
The only time refusing COLAs crosses into illegality is if wages dip below minimum wage or a signed agreement is violated. Otherwise, the practice may be unfair—but it’s legal.
Workers Are Starting to Push Back
A 2023 Bankrate survey found that 55% of workers said their pay hasn’t kept up with inflation. This frustration has fueled union drives, strikes, and higher quit rates across industries.
The Future of COLAs in the U.S.
As inflation remains unpredictable, pressure is mounting for employers to adopt regular COLAs—or risk losing talent. Younger workers, especially, are demanding pay structures that reflect rising living costs.
Legal, But Not Fair
So, is it illegal for your boss to deny a cost-of-living increase? No. Is it fair? Probably not. While COLAs aren’t your legal right, they are fast becoming a workplace expectation—and a key factor in retaining employees.
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