Starting a new business? Get 40% off our accountancy services for 3 months! 😎
Annual pay rises are pretty standard in some larger companies, but for smaller businesses this approach might not always be affordable – or appropriate. That doesn’t mean you won’t ever face the prospect of salary increases though, so in this article, we’ll look at reasons why you might (or might not) award a pay rise.
Unless it’s written in their contract, you’re not actually under any legal obligation to give your employees a pay rise as long as their pay meets minimum wage requirements.
As their employer it’s entirely up to you whether or not you’ll consider pay rise requests. That said, it’s certainly worth scheduling in regular reviews – even if it’s just for your own benefit, to keep an eye on things.
Like all business decisions, there are good reasons to do, or not do, something. The rationale for agreeing what to pay someone can change depending on circumstances, but increasing someone’s salary usually relates to employee retention, rewards, or growth. For instance:
If your employee is ticking off any of these, they might well be a keeper! Rewarding deserving staff can be great for a business, improving staff retention, employee satisfaction and morale, and garnering loyalty. It also reduces the resources you need to spend on recruitment.
Having a written policy or process in place that you can refer to will help you take a more logical, impartial approach to considering requests for a pay raise.
Having a chat about it will help you understand their motivations. For instance, is a rival firm advertising a similar role for more money, or do they have new responsibilities or qualifications? An in-person chat can sometimes help break down the barriers (but having things in writing is always useful!).
Whatever your response, it’s extremely useful to explain the reasoning behind your decision. For the long-term, put a plan of action in place. Outline targets they need to hit or new skills to acquire in order to level-up. Putting a framework and date on the plan will make it real for both of you.
Whilst you might be thinking “I can’t afford to lose them”, can you actually afford to pay them more? As well as paying a higher wage, the employer’s contributions you make on top of their salary will also increase.
For instance, pension contributions, and employer’s National Insurance contributions, amongst others that might apply. They’re all additional costs to take into careful consideration before signing on the dotted line.
It would be far worse to agree a pay rise which you can’t really afford, only to struggle with the consequences. You’ll compromise your mental wellbeing, but also put your business and cash flow at risk.
Sometimes, sad as it is, an employee pay rise can’t be your first priority. If you need to focus your spending elsewhere, explain why. Overpromising and under-delivering will cause problems in the future, but failing to discuss this with staff can damage morale and motivation.
Your accountant will be able to guide you through the long-term implications of awarding that pay rise, and whether or not your business is likely to be able to sustain it. Situations like this are precisely why we always advise keeping your records up to date!
Running a business can be stressful, and there may well be situations that are out of your control. If you can’t afford to issue a raise at the moment, there are still other options to explore.
If you’re not yet in a position to award staff with a salary increase, or simply want to boost morale, there are other ways to show your appreciation. Think outside the box! This might look like:
That’s just the tip of the (generalised) iceberg! Consider the bigger picture - wanting to keep your workforce happy is not a bad thing. In fact, it’s a very desirable trait for an employer to have, but awarding rises might not always be the only option.
Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.
Subscribe to our newsletter to get accounting tips like this right to your inbox
Read our guide to UK tax rates and thresholds for sole traders, limited companies, partners and partnerships, employers, and other businesses. UK…
Read MoreVinted has grown in popularity as a place to make a bit of cash selling unwanted clothes following a declutter, but it…
Read MoreSubmitting your tax return as soon as the next tax year starts might seems like a strange notion, but it definitely has…
Read MoreThe number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?
Please contact our sales team if you’re unsure
It is unlikely you will need this service, unless you are voluntarily registered for VAT.
Are you sure this is correct?
Call us on 020 3355 4047 if you’re not sure.
You will receive our bookkeeping software Pandle for free, as part of your package.
You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.
Please select and option below:
Call us on 020 3355 4047 if you’re not sure.