5 Things To Consider Before Offering An Employee A Pay Rise
A pay rise is a great way to show an employee how much you value their work. It can provide your employee with greater financial security and inspire them to stay at your company. However, there are a few potential downsides and concerns to consider when raising an employee’s pay. This post delves into some of the most important pay raise considerations to make when deciding whether to offer an employee a pay rise.
Do they deserve a pay rise?
When offering a promotion to an employee, it is only fair that you offer them a pay rise – extra responsibility deserves to be rewarded. However, a promotion needn’t be the only time an employee deserves a pay rise.
An employee could also be deserving of a pay rise if any of the following criteria apply:
- Their level of work performance has been exemplary. Perhaps they have achieved more sales, have received a lot of customer praise or have been going the extra mile to deliver high quality work.
- Competitors are offering a higher salary. If your wages are lower than those being provided by other companies, a pay rise could be necessary to prevent your employees leaving and show that they are just as valued as employees at other companies.
- An employee has recently had a child or bought a house. These additional personal responsibilities may come with extra costs, which could be hard to cover on their current income. By offering a pay rise, you can show your employees that you care about their well being outside of work and you can reward their personal successes.
- An employee has been loyal to you for many years. Rewarding their loyalty by offering them a pay rise can show them you value their years of service and could inspire loyalty throughout your team.
When should you deny an employee a pay rise? While it is completely up to you as to who you reward, you may want to withhold offering a pay rise if an employee:
- Hasn’t been putting in enough effort at work
- Is already on a pay rate higher than the market average for their role
- Hasn’t had any recent changes in personal circumstances
- Is still fairly new to the company
Can you afford to offer more pay?
When offering a pay rise, it’s essential that your company has a budget large enough to cover this extra pay. If money is already tight and you’re only barely making a profit, you may have to hold off providing a pay rise or make cutbacks in order to make it feasible.
Pay rises are typically most feasible during periods of growth. Giving your employee a pay rise should be seen as an investment on your part – it should ultimately help the company in some way by helping you to retain top talent or inspiring an employee to work even harder.
How will a pay rise affect their tax rate?
It’s important to consider whether a pay rise is likely to put an employee on a higher tax band. A salary increase could result in them paying more towards tax, and they could actually end up taking home less money.
In this case, a pay rise needs to be large enough that it makes up for the additional tax. Alternatively, it may be better to simply keep them on the same salary and find other ways to reward them.
Would they prefer extra benefits instead?
If an employee is right on the upper threshold of their tax band, you could find that it’s better to offer additional benefits instead of higher pay. Exchanging higher pay for additional benefits is known as a salary sacrifice – it can save employees from paying extra tax while still rewarding them. Types of benefits to consider could include a paid gym membership, grocery vouchers, a paid phone plan, additional vacation pay or buying/leasing a new car for them. This post delves more into the benefits of salary sacrifice schemes.
Even in cases where a pay rise doesn’t result in higher tax, you may find that some employees still prefer the option of receiving additional benefits. Some employees may even be happy being rewarded with benefits that don’t necessarily save them money but simply reward them with more time/flexibility. This could include benefits like working from home, flexible hours, more annual leave or the option to work four days per week – all while receiving the same pay.
Will other employees want a pay rise?
When offering a pay rise to an employee, you should consider whether other employees will expect a pay rise too. While you can discourage employees from discussing pay with colleagues, employees may still find out one way or another.
You could find that offering one employee higher pay could spark a chain reaction of pay rise demands. This is something you need to be able to fairly counter if you don’t have the money to reward multiple employees with a pay rise – make sure your reasoning for singling out an employee is justified.