A cost-of-living adjustment (COLA) is a salary increase applied broadly across the workforce to keep pace with inflation, so real purchasing power does not erode over time. Unlike a merit increase, it is not tied to individual performance.
What it means
Many organisations apply both: a COLA as a baseline increase for everyone, topped up with a merit increase for individual performance, within a combined increase budget for the round.
Where it fits in
A COLA, like a merit increase, updates basic salary in payroll from an effective date, and because it touches the whole workforce at once it is usually the larger of the two payroll-cost changes in any given increase cycle.
Key rules
- COLA = cost-of-living adjustment, applied across the board, not by performance.
- Often combined with a merit increase within one overall increase round.
- Updates basic salary in payroll from an effective date.
- Typically the larger driver of payroll cost change in an increase cycle, since it touches everyone.
