When should I give a pay raise to employees?

There are several instances where it may be appropriate to offer an employee a pay raise:

• Your employee has reached an employment milestone with your company, and you’d like to give them an incentive to stay.
• Your employee has asked to negotiate a pay increase, and you’ve decided you’d like to keep them rather than allow them to work for a competitor.
• You offer yearly raises to all your workers to account for inflation and rising costs of living.

While giving a pay raise is one way to entice employees to remain with your company, it’s not the only tool you have available to do so. Some employers are exploring benefits as a form of compensation that competitors may not be able or willing to match. Offering certain benefits may have tax implications that provide an advantage over simply offering your employees more money.

What was the average wage in 2024?

According to information from the Bureau of Labor Statistics, the annual mean wage for workers in 2024 depends largely on their age and experience level in the workforce. For example, adults between 20 and 24 years old make a median salary of $737 per week while adults between 25 and 34 make $1,018. Businesses are willing to pay a premium for workers who have more experience, based on this data.

Annual raises for U.S. employees average 3%. Some people have pointed out that this doesn’t match inflation, but many workers make higher wages by taking promotions or moving to new companies instead of accepting an annual pay raise. As an employer, you may want to consider how the pay raises you give your employees might impact their quality of life, and by default, their workplace performance.

What is the appropriate salary raise in 2024?

Most companies have budgeted for 3% annual pay raises over the last decade, and most information suggests this trend will continue. This is true for salaried, hourly and executive worker categories.

With the increasing costs of living and inflation, however, your previous annual wage increases may not be enough for employees to live on comfortably or to reward them for a job well done. To determine the appropriate wage increase for 2024, you need to look at various factors, including your company’s revenue, to determine what level of pay raise you can afford to give your best employees.

Some employers choose to reward star employees with larger raises to keep them from leaving while giving standard raises to the rest of their workforce. This is one way you can get the most out of your budget and incentivize performance and productivity.

Factors influencing average yearly raise amounts

When you’re considering an appropriate raise amount for your employees in 2024, there are four key factors to look at. Assessing these areas can help you decide whether the median 3% increase is sufficient or if your employees deserve more. The key factors to consider are:

Revenue

One of the first factors to look at when determining the average yearly raise you can afford to give employees is your revenue. If your business is doing well, and you’re seeing regular growth, you might consider giving employees a more significant annual increase.

Cost of living

It’s important to think about cost of living increases when giving employees a pay raise. Cost of living adjustments (COLA) are increases designed to offset inflation.

The expected COLA for 2023 is 8.7%, meaning if you were going to give an employee an annual salary increase of $10,000, you would adjust that amount to $10,870 to account for inflation. The cost of living can vary significantly across the country, so check to see how cost of living and wages compare in your area when assessing pay raises.

Performance reviews

A significant pay raise is a great way to motivate employees to work harder and remain loyal to the company. Some businesses link their annual pay raises to performance reviews and may have supervisors suggest pay raises based on a person’s review.

When you conduct performance reviews ahead of your decision to give workers a wage increase, you can reward those who are adding value to the company with a more significant pay raise.

Adjustments for equity

Sometimes, you might need to give employees a bigger pay increase to maintain internal equity at your company. For example, if an employee receives a pay increase for doing excellent work and now makes more than someone who has been with the company for a decade, you may consider giving your long-standing loyal employee a raise as well. Employees talk, and wage inequity can spark dissatisfaction among your staff.

Keep up with competitors

You should also look at what competitors are paying for similar roles when considering how much of a pay raise your employees deserve. If your company’s wages aren’t measuring up, you’re likely to lose top performers to a competitor who’s willing to pay a higher salary.

Why some employees are interested in more than a salary raise

Most employees appreciate a cost of living raise at the minimum, and many are thrilled with a significant pay raise that recognizes their hard work. However, in a meeting where you’re offering an employee a pay increase, you may encounter some workers who want to negotiate for better compensation in other areas.

For example, some workers may request that in lieu of a pay raise, they receive more paid time off because they enjoy traveling during their off time. Other employees may request a paid gym membership as part of their benefits package so they can take better care of their health.

It’s your decision whether you want to accommodate these requests, but it’s often in your best interest to do so if you value the employee who’s asking for the new benefits.

Is giving a pay raise necessary?

You aren’t legally required to give your employees annual pay raises, and you may have valid reasons for choosing not to do so. Some businesses may be unable to offer raises due to a bad financial year. If you’re not going to give your employees a pay raise, it’s important to communicate with them and let them know why you’ve chosen not to.

Statistics show that 33% of people who are denied a raise aren’t given a reason. Of that group, 70% will seek a new job within six months.

To avoid a high rate of turnover, which can cost your business a significant amount of money in the long run, it’s often worthwhile to accommodate pay raise requests from employees who are doing good work or to attempt to keep them with your business another way.

Appropriate salary increase for 2023 FAQs

What is the minimum wage?

The minimum wage in the United States varies by state. At the federal level, the minimum amount an employer can pay nonexempt employees is $7.25 per hour, but many states have their own minimum wage laws.

What is the best time of year to give employees a raise?

There’s no right time of year to give your employees a raise, although some companies may give cost of living raises in the first quarter of a new year. In many cases, the best time to give a raise depends on when the employee started working for the company and how long it’s been since they received their last pay increase. It usually makes sense to review an employee’s performance every 6 to 12 months, making salary increase decisions at that time.

What are some alternatives to giving a pay raise?

If you’re not in a position to offer most of your employees a pay raise, you can consider offering benefits instead. Some benefits programs that workers may find valuable include more paid time off, health and wellness programs, health savings accounts or retirement benefits.