Cost of Living Adjustment (COLA)

Meaning & Definition

A Cost of Living Adjustment (COLA) is an increase in an employee’s wages or salary that helps them meet the costs associated with their everyday existence (including food, housing or shelter, transporting literature, etc.) to the point where their purchasing ability continues to be as high now, compared to the time they received the COLA, even with the effects of inflation.

Important aspects of Cost of Living Adjustment (COLA)

• Supports employees with the cost of living and inflation. 
• Helps keep employees’ purchasing power stable and financially healthy. 
• Enhances overall employee satisfaction levels and increases the chances of keeping employees with the company. 
• Promotes equitable and competitive pay practices. 
• Demonstrates an employer’s commitment to the welfare of their employees.

Legal & Regulatory Considerations

Despite the absence of a formal statutory inclusion in India concerning a private company’s responsibility for providing a Cost of Living Adjustment or COLA, it is typically referenced in connection with the DA in Government jobs and is often mentioned in employee contracts, human resource policies and collective settlements.