Imagine this scenario: An independent retailer has a very loyal and dedicated staff. The business owner feels strongly that they deserve raises for their hard work. But sales simply cannot keep pace with the spiraling costs of products, supplies, vendor fees, insurance and the many other expenses of operating a business in 2025.

Merchants might feel anxiety as they wonder how to break the bad news to employees, who are feeling the same financial pressure in their own lives. Keeping them motivated and avoiding plummeting morale will be a big challenge. But it is not insurmountable.

Essential keys to maintaining a strong relationship with employees in this situation are honesty and being proactive. Waiting until an employee asks whether there will be raises this year, or keeping quiet until staff figures out the answer on their own, could cause them to see you in a new, negative light.

Yet, if you address the sensitive issue quickly and proactively, your employees will likely appreciate your transparency and concern for their well-being. Explaining how and why business costs are significantly increasing and substantially outpacing revenue in as much detail as possible is critical.

It is also important to convey that you genuinely appreciate their commitment and understand that their lives are already affected by ballooning bills. Business owners should also allocate enough time at a staff meeting to answer any and all questions, many with no easy answers.  

In keeping with honesty, you should not make promises that you cannot keep. Stating that the financial situation will be better next year and raises are on the horizon to keep staff inspired could be a complete disaster and risk a total loss of confidence if you cannot keep your word.

In addition, understand that even your longest tenured and most loyal employees may need to look for employment elsewhere. This is to be expected. As the employee might not find a new position for a while, let them know how much you value their worth while demonstrating that you empathize with their situation.

Business owners should consider thinking about small ways in which they can boost morale in the short term. If practicable, they could take their employees to lunch or, if many of your employees use mass transit to commute, perhaps think about paying their bus or train fare for a period time.

Another great way to show thanks is giving out online gift cards to Amazon or a similar marketplace that seemingly has something for everyone. Employees who know that you are doing your best to support them through an overwhelming time encourages continued commitment. Individualized notes to each staffer would also be appreciated.

There are plenty of creative ways to keep an upbeat atmosphere. For instance, you might want to consider holding a raffle each month in which the winning staffer is entitled to use your designated parking spot the next month.

By explaining to staff why you cannot give raises while recognizing their vital role in the business’ operation, you can both maintain good feelings and, in some instances, strengthen morale.