Cost of Living Allowance (COLA)

A Cost of Living Allowance (COLA) is an amount added to an employee’s salary to help offset the impact of inflation—the rising prices of goods and services. Its purpose is to maintain the employee's purchasing power over time, ensuring they can afford similar living standards despite economic changes. COLAs are typically based on measures like the Consumer Price Index (CPI) and are adjusted periodically, such as annually. This helps workers keep pace with inflation, safeguarding their income from decreasing real value due to economic shifts.