Factors that impact salary increases
On paper, giving a raise in pay can seem like a costly activity that cuts into your overhead. However, giving regular pay raises to your employees is an opportunity to have positive discussions about your company and employee contributions.
Communicating a salary increase provides an opportunity to sit with your employee and review the reasons or equations used to calculate the amounts in their paycheck. Some factors that impact salary increase amounts include:
- Competitor company pay scales
- Size or value of the employee’s client book
- How many hours an employee works on a weekly or monthly basis
- Employee performance and longevity with the company
- Cost of living increase
- Company revenue and growth
Remember that while many employees may demonstrate loyalty to their company and coworkers, they may find themselves considering how their salary impacts their personal life. For example, stressors from home and family life or increasing bills may have employees looking elsewhere for a bump in pay. Having regular discussions about your employee’s salary and anticipated raises allows your company to remain competitive and retain the best talent.
When is it time to give employees raises?
Every company may take a different approach when it comes to scheduling salary increases. Sometimes pay increases are written into an employee’s offer letter or contract. Other companies discuss and issue raises during employee reviews and evaluations.
You should also consider individual pay adjustments for employees whose performances are consistent with the growth of a company. Examples of this can include employees who:
- Nurture relationships with valuable clients
- Increase company revenue
- Tackle additional responsibilities with enthusiasm
- Demonstrate strong leadership skills
How to communicate a pay raise with your employee
Delivering good news to an employee can be exciting, especially when it’s time to communicate an increase in salary. But there are several key factors to keep in mind.
Generally, discussions over pay increases should be done in person and privately. You might also consider having a representative from human resources or accounting present to answer any questions or address a miscommunication that could result in conflict or legal liability.
Consider these best practices when it’s time to communicate a pay raise to an employee:
- Explain why they’re receiving a pay raise. For example, you might be issuing a raise to adjust for cost of living, which would help cover the increased cost of expenses like rent, taxes or childcare. Perhaps you’re awarding a merit increase to reward a high-performing employee.
- Highlight any specific contributions your employee made to the company that contributed to the increase in salary.
- Discuss the raise in dollar amounts instead of percentages. Saying a “2%” increase always sounds less significant than the corresponding dollar amount. Tell the employee the new annual or hourly dollar amount they’ll receive moving forward.
- Avoid detailing why the paycheck increase isn’t higher unless the employee questions the pay raise amount.
- Always thank the employee for their contributions to the company, which will show your appreciation but also encourage them to continue doing a great job.
- After you communicate the pay raise to your employee, follow up with your Human Resource department to confirm it’s been applied.
Who should communicate the raise?
The communication of the pay increase can depend on your company’s existing payroll protocol. This may be left to the employee’s direct report or to the manager who oversees their department. In some cases, it might be necessary to have a human resources representative on hand to answer any questions concerning withholdings or payment logistics.
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