What’s The Deal With Pay Reviews?

Between COVID and Brexit, there’s been a lot of uncertainty around pay reviews this year. Many employers just don’t feel safe putting up salaries at the moment, but some are looking to see whether they can at least give a cost of living increase as we ride out the storm.

The Office for National Statistics (ONS) stated that this February it cost 0.7% more than last February to buy exactly the same items, from petrol, to shoes, to a loaf of bread. Cost of living is therefore the minimum increase you can give to make sure your people continue to get the same value from their pay.

As an employer, how much base salary you pay someone is a contractual entitlement. By law, an employee must have a clear understanding on or before their first day of employment how much you’re going to pay them and when. If you change their salary, this is a contractual change and must be confirmed in writing. While you are able to increase someone’s salary and inform them of the increase, you cannot unilaterally decide to decrease or withhold salary; this would be illegal. Any decrease in working hours and / or rate of pay per hour must be with mutual consent. So making a permanent decision to increase salary is a long term financial decision.

Outside the annual pay review, additional triggers for assessing remuneration tend to be in one of these areas – staff retention, industry pressure, occupational pressure, or internal pressure:

If someone tells you they’re resigning because they believe they could make more money elsewhere, you can either accept or offer them a pay rise. Many business owners will do the latter to avoid losing a valuable team member. However, if their pay is considerably lower than it should be, this becomes industry pressure. So, for example, if the going rate for a job is £30,000 and you’re only paying £20,000, the employee concerned is in a difficult position and likely to feel undervalued. There are also certain industries where there’s occupational pressure, or expectation, so that each time an employee passes an exam they should get a pay rise. And internal pressure can arise when, for example, you’re recruiting someone into a role whose line manager would be on the same pay as them. While there are some instances where this can work, such as a very specialised role, ideally the balance would be shifted by upping the manager’s salary.

Sometimes rather than giving a pay increase, it’s more useful to you as an employer to introduce some kind of incentive. Once you add money to a base salary it’s very difficult to take that money away. Commission and bonus schemes are set by the company – employees are just informed – so you retain the right to vary and change them as and when you see fit. It’s actually a good idea to reset things on a regular basis so employees don’t get too comfortable with their targets and the commission they have the potential to earn. Even if you just flex it up or down by 1%, it breaks ‘custom and practice’ and acts as a reminder that it’s not guaranteed pay and therefore not set in stone.

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