Employees may make a request for a pay rise at any time of year for any number of reasons.

But in the midst of a cost of living crisis with a recession looming, staff may come to you looking for support to cope with everyday costs. ONS figures show that private sector wage growth was much greater than in the public sector in the three months to November 2022, increasing by 7.2 per cent and 3.3 per cent respectively (6.4 per cent on average), though still significantly below the rate of inflation.

So, as an employer or manager, what can you do if an employee approaches you with a pay rise request?

Don’t react right away

Don’t say anything leaning towards yes or no in that moment – you can’t, really. First, you need more information from the employee and possibly the joint approval of HR or another team member. Even if you are the one making the decision, it’s worth taking the time to mull it over.

Treat the request with respect

It’s daunting for an employee to ask for a pay rise, but something serious is likely to prompt it. This could even be a make or break moment for retaining that employee, so treat the request with respect. “Saying no to a pay rise can lead to you losing key people who don’t feel valued,” said Samantha Owens, senior employment solicitor at Harper James. “There are additional costs which come into play if you lose that key team member, including recruitment fees, time spent on interviews, paying for or time spent running training courses and helping new starters settle in.”

It doesn’t just apply to the employee in question though. This approach should be taken with all employees. Mandy Watson, managing director of Ambitions Personnel, told Small Business: “From the employer’s perspective, it’s key to handle any such requests with care and sensitivity but also, and perhaps most importantly, with consistency. Following the same process with everyone is not only fairer but also protects the employer too.”

Watson highlights the signs of a positive culture in relation to pay increase requests can look like:

• An ‘open door’ policy, meaning employees feel able to approach their line manager or other senior figures to have these types of conversations
• Business leaders who listen and show empathy towards employees – striking the right balance between the needs of the employees and the objectives of the business
• Having structures and transparency in place when it comes to pay can help eliminate any discontent
• While structure is important, businesses must be open-minded and flexible to remain competitive in a changing employment market.

Schedule a time to talk later

Being more prepared gives you the time you need to examine your company finances to, first of all, determine whether a pay rise is even viable. “For small businesses, looking at the company’s finances is important as the likelihood is once one employee asks for a rise and is granted one, others will follow suit,” said Danielle Ayres, employment law partner at Primas Law. If the business does have enough money to consider pay rises, then the employee’s current salary should be considered for an increase.”

Knowing what the industry standard is for your employee’s position is invaluable in your decision-making too. Resources such as Indeed and Glassdoor will have this info as well as HR professionals.

Go over the employee’s past performance and see if it warrants a pay rise. If they’ve gone above and beyond in their role then that makes a solid case for a pay rise to reflect that. If it’s going to be a no from you, think about what they can do to secure an increase in future such as increased responsibility or new projects.

The upshot of the employee being prepared is that they can present the strengths in their performance and opportunities for growth. Your notes might even mirror one another when it comes to your meeting.  

Ask them to state their case – why do they feel they deserve a pay rise?

Megan Boyle, head of content marketing at digital marketing agency, The Audit Lab, was recently approached by one of her team during her twice annual pay review. She was already getting a pay rise but asked for more. Another member of her team made a pay rise request, even though she had had one six months prior.

“What I was looking for was them being able to show that they have earned it. Can they justify asking for the additional pay?”

She explains that the company has a professional development plan for each employee and they tick tasks and skills off as they master them. Each title has a salary band, so it is possible for them to get a raise without a promotion.

“I also ask for evidence that they have completed the tasks and skills – this is their responsibility. I don’t keep track of their progress for them, and I don’t create the opportunities to learn and develop – they have to seek these out. As long as they can show their value to the team, I will have no issue taking the increased pay request to the board for approval, because it is then my job to make the case to the board. The better [the] case they make to me, the better I can make on their behalf,” she told Small Business. 

Take notes during the meeting and give a set time period for making your decision. That’ll give the process more certainty.

If it’s a yes, remind the employee that their pay rise was earned and your expectations of them will be higher. If it’s a no, tell them how their performance or role could develop to achieve that pay rise or, if it’s a financing issue, explain that to them.

“If an employer does not grant a request for a pay rise, they must also be prepared for the potential consequences and have justification and an explanation to provide to the employee,” said Ayres.

“Most employment contracts provide for yearly reviews of employees’ pay. This is a good way to manage pay reviews and any subsequent rises while also ensuring that salaries are aligned with industry averages, taking into account company finances and any cost of living increases. Any such clause should clarify that pay rises will be at the companies’ discretion and that there is no absolute right to a pay rise, even if one has been granted in a previous year(s).”

Make it a regular conversation

To reduce the shock factor, have regular discussions about pay with your staff – don’t just leave it until appraisal time. Appraisals should be separate from a salary review, but they’re still a good opportunity to speak about the future of the employee’s role and how they are are doing. It might even be a good idea to schedule a salary review after an appraisal.  

Julio Taylor, CEO of Hallam, told Small Business: “By openly discussing progress, goals and the next steps, pay can become a very normal conversation topic.

“Although there may always be times where an employee makes the first move about pay, to me it’s an indicator of good management if the topic is proactively brought into conversation by the manager, and always tied to tangible goals and aspirations, as well as recognition of performance.

“I also think it’s better to give pay rises on merit, not just during generalised pay reviews.”

Consider alternatives to a pay rise

It’s a tough time for small businesses too and pay rises aren’t always possible. However, you could offer a one-off payment to help with living costs.

Other non-financial alternatives include extra holiday, training opportunities or flexible working hours. Read more in Can’t afford a pay rise? 9 alternative ways to reward your staff

It’s essential to shape the benefit to your employee. Chris Goulding, managing director of Wade Macdonald, said: “Employers cannot just rely on a blanket approach to benefits, essentially throwing perks at the wall and seeing what sticks. Taking a tailored, consultative approach will ensure that employees feel valued but also that companies are not wasting resources on un-utilised rewards.”

Read more

Five employee benefits to attract the best talent when recruiting for your business