Often cited by news outlets when discussing inflation and government benefits, COLA remains widely misunderstood — particularly regarding its applicability to private-sector employers. This update explains what COLA really means for employers, public and private.

1. What Is COLA?

A Cost-of-Living Adjustment (COLA) is an increase in retirement, benefit, or pay levels designed to help recipients maintain purchasing power as prices rise due to inflation and other factors. For government-managed benefits, like Social Security, COLA is determined annually based on inflation data, specifically, changes in the Consumer Price Index. But COLA is not a universally guaranteed entitlement for all workers or employers. It is only mandatory where a statute, contract, or benefit program requires it.

2. What is the 2026 COLA rate?

For 2026, the Social Security Administration (SSA) has announced a 2.8% COLA for Social Security beneficiaries. On average, monthly Social Security retirement benefits will increase by about $56.00 (for a typical beneficiary),with checks rising from roughly $2,015 (2025) to about $2,071 (2026). The 2.8% COLA increase will also apply to other federal benefits tied to inflation, such as certain federal retirement annuities under the Civil Service Retirement System (CSRS) and some veterans’ benefits. Historically, the past 3 annual COLA increases were: 8.7% in 2023, 3.2% in 2024, and 2.5% in 2025

3. Do Private Employers Ever Need to Provide COLA?

For private-sector employers, there is no obligation under federal law to provide automatic annual COLA increases to wages or salaries. The 2.8% figure does not impose a regulatory mandate on private businesses. COLA is a statutory adjustment for defined-benefit government programs — not a benchmark that automatically translates into private-sector pay practices.

However, in limited circumstances, private employers may be required to provide COLA if they have contractually committed to it, such as in employment agreements, collective bargaining agreements or compensation policies. Absent such contractual or policy-based commitments, COLA remains a voluntary business practice, not a legal requirement for private employers.

4. Why Government COLAs Can be Misleading Benchmarks

COLA announcements receive significant media attention, which can lead to the assumption that private sector workers are entitled to a COLA raise. However, COLAs tend to be benchmarks or reference points, not legal obligations for private employers.

5. Implications for Employers

If your company has no contractual or policy-based obligation to provide COLA, the 2026 2.8% increase to Social Security or other federal benefits does not require you to raise wages. However, you may wish to consider whether to offer cost-of-living or inflation-based salary adjustment voluntarily, especially if retention or competitive pay is a concern.

And always assume your employees are savvy consumers of economic theory and follow  the news. For questions about wage payment issues, contact an RKW attorney.