Pay · HR glossary

Cost of Living Adjustment

A cost-of-living adjustment, or COLA, changes pay or an allowance to reflect specified living-cost differences or changes. It may use an index, policy formula or negotiated arrangement.

Example

An employer applies a documented adjustment based on a selected price index or provides an assignment allowance for a higher-cost location.

What to keep in mind

COLA is different from a merit increase and does not always match an individual's actual expenses. Explain the index, reference period and review method, and check whether the adjustment is contractual or discretionary.

Further reading

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