Employees may come into the business with certain expectations about receiving a rise. It could be that they expect an annual increase, or it could be after taking on several extra responsibilities. Large corporations can typically afford to give rises such as these. But what happens when you’re a small business?
Why should I give a pay rise?
Typically, pay rises are given to show your employees appreciation or help when inflation increases. However, unless it is written into the employment contract for the employee, there is no legal obligation to give a rise as long as their pay meets the National Minimum Wage/Living Wage.
As an employer, you might find it beneficial to regularly review your employee’s wages and consider any rise requests. Keeping on top of pay can help to improve employee retention and give you a clear insight into what’s working for you and your business.
When should I consider giving a pay rise?
There are no hard and fast rules regarding when you should give a rise, as long as it makes financial sense to your business. However, consider the following when reviewing your employee’s pay or rise requests:
- Are they consistently generating worthwhile leads and sales to bring in revenue?
- Have you given them more responsibility that they’re taking in stride?
- Are they performing above and beyond for the business?
- Have they demonstrated long-standing loyalty towards your business?
- Are their skills critical to the running of the business? For example, would they be hard to replace, or would it be damaging if they went to a competitor?
If your employee is meeting any of these, then it might be time to reward them for their dedication to the business.
What’s the protocol for responding to a pay rise request?
There’s no set protocol in place, and as each business is unique, how they handle requests will be unique, too. However, a good place to start is having a written policy in place that outlines the process for your business.
This policy can act as a point of reference for both you and your employees when the situation arises.
The first step of the policy would typically be to have a face-to-face chat with the employee to find out their reasons for believing they deserve a rise. For example, is a rival trying to poach them from you with the offer of more money? Or have they taken on additional responsibilities that they feel they deserve to be recognised for?
Following this chat, it’s a good idea to get things down in writing just to be sure you’re on the same page, and nothing can be twisted out of context on either side.
Then, once you’ve come to your decision, you should clearly communicate it with your employee, along with the reasoning behind it. If it’s a “not yet” decision, you need to clarify when the target will be hit. For example, does the employee need to do additional training, or do they have a specific sales target they need to hit? Put all of this into a framework along with a date. This will make the targets real for both of you, and you’ll know when they have been hit.
What if I can’t afford to give a pay rise, but they deserve it?
You might be thinking, “I really want to give this person a rise, they deserve it”, but you can’t actually afford to. After all, as well as increased pay, you’ll have to deal with increased pension contributions and employer’s National Insurance contributions.
You could be in a worse position if you agree to give your employee a rise which you can’t afford. While this could mean your employee leaving your business to go to a competitor, your first priority has to be the future of the business.
How else can I show employee appreciation?
If you can’t afford to give a pay rise, you can look at other avenues for rewarding staff. Including:
- Extra paid holidays
- Early finishes
- Training programmes in skills that help both them and the business
- Other benefits, such as gym memberships
Just remember that you need to weigh up your options carefully and make sound business decisions rather than jumping straight into any pay rise requests that cross your desk.