When an employee asks for a pay rise it can be a tricky scenario to handle. Maybe the request has come completely out of the blue or maybe you saw it coming.
These situations are critical moments in your relationship with an employee and how you navigate it can play a huge role in whether you’re perceived as a “good manager” or a “bad ”one.
Think about it from their perspective - if you’re asking your manager for a pay rise, you’re likely ready to be working at a higher pay level or believe you’re being underpaid. Or, you’ve been offered a job elsewhere and want to give your manager the opportunity to match the salary on offer (or beat it).
So, how should you respond to an employee requesting a pay rise in Australia? What should you consider as you weigh up the decision? And, if the answer is no or “not yet”, what’s the best way to communicate this?
What you should do when an employee asks for a pay rise
First up, let’s clarify a quick point. A pay rise is when an employee is completing the same job for more money. This is not to be confused with a promotion, which typically includes a title change, along with a new set of responsibilities and a higher salary.
Although a lot of this advice is still applicable to promotions, it is the pay rise conversation we are explicitly addressing in this blog.
When an employee asks you for a pay rise, the first and the best thing you can do is keep your initial response in check. Whether this employee is a standout worker or not, your reply shouldn’t be a ‘yes’ or a ‘no’ straight away.
You may feel uncomfortable or ill-prepared to be having a discussion about a pay rise but just know that if an employee is bringing it up, it’s likely something they’ve been mustering the courage to do for a while now.
From the employee’s perspective, hearing an immediate “no” or even that it’s unlikely is demoralising and deflating. A reactive “no” will make them feel as if you’re not even willing to entertain the idea.
And delivering a “yes” without doing the due diligence required for such a request could also have an adverse effect down the line.
When faced with a pay rise request, ask your employee for more information - why do they believe they deserve a pay rise? Their answer will give you insight into what their stance is and help inform your own thinking on the matter.
If your employee has a lot to communicate and you believe a deeper discussion is needed, make a meeting to review their request and hear them out fully.
Let your employee know that their request will be considered and you’ll give them an answer in 7 - 14 days. This gives you plenty of time to evaluate the request if you need it, and have it approved (or denied) by the appropriate people.
How to evaluate a pay rise request
How much of a pay rise is reasonable?
Typically, companies offer a 3-5% increase on average. However, given the rise of inflation, the Reserve Bank of Australia has said that “steady state wage increases in Australia should be about 3.5%”.
To meet the rising cost of living, which may be your employee’s motivation for their pay review request, this percentage should be kept in mind.
If an employee is asking for a raise because their duties and responsibilities have changed drastically and it’s been a long time since their last raise, it’s not unreasonable for them to expect a larger increase (10-20%).
First and foremost, researching the job market and seeing what your competitors are offering is a good indication of what your employee may be expecting. If you feel like you need support in this area, you can contact us for guidance on salaries.
Often, asking for a pay raise indicates that your employee might be ready (or already looking) to jump ship and look for a higher-paying job elsewhere.
What a “reasonable” amount comes down to might be how much you’re willing to offer to hold onto talent (especially considering the candidate shortage the freight forwarding and logistics industry is facing).
Is it law to get a pay rise every year in Australia?
An employer isn’t obligated to deliver pay raises to their employees every year. However, your employees may be legally entitled to a raise or bonus under these circumstances:
It’s stated in their contract
Guidelines for granting a pay rise or bonus may be mentioned in an employee’s contract. However, often employers include a clause, making the granting of a pay rise up to their discretion (meaning they’re not contractually obligated to give them out).It’s part of company policy
If pay raises and bonuses aren’t mentioned in employee contracts, your workplace may have a policy that states its rules for granting them.It’s mentioned in an award or enterprise agreement
While an employee may not be contractually obligated to a pay rise, awards and enterprise agreements for certain occupations might have terms that dictate how pay increases and annual reviews are conducted.
How often should employees get a pay rise in Australia?
Since pay rises are dealt with at the discretion of the employer (except in the scenarios mentioned above), you technically aren’t bound to a timeline.
However, increasing your employees’ salaries is a great way to boost their morale and show that you value them. Pay is closely tied to job satisfaction, so making sure they’re being rewarded regularly is important.
A common strategy for businesses is to tie their annual performance review in with a salary review. However, just because issuing a raise every 12 months is thought to be common, doesn’t mean you have to go down this road.
While, yes, your employees’ salaries should be keeping up with CPI (consumer price index), if an employee hasn’t been performing well, they shouldn’t automatically be given a raise just because another year has passed.
Ultimately, how often you decide to give out pay increases is up to you. You need to take into consideration your employees’ expectations and their job satisfaction, the state of the job market and your competition, as well as your company’s financial position.
Delivering the outcome to your employee
Whether you’re delivering good news or bad news, make a meeting with your employee to discuss their request in private.
If you’re delivering positive news we’d recommend the following approach:
Make sure your reasoning for the pay rise is known. What’s the context surrounding your decision? Is it a cost of living raise? It is because they’ve been excelling in their work and you’d like to recognise this?
Communicate the amount using a dollar figure instead of an abstract percentage like 3%. This way they know immediately what to expect and don’t have to go away and calculate it.
If you’re giving an employee a raise, but it’s not as high as they’d have liked, communicate why it isn’t. Be as transparent as you can with your reasoning or the external factors that impacted this decision. This helps to build trust and understanding.
Thank your employee for their work and contributions to the company. Make sure they feel valued and appreciated for all that they do.
If you’re delivering negative news, we’d recommend going about it like this:
Don’t beat around the bush - deliver the news and let them know why they haven’t been successful in receiving a pay rise. These reasons may be entirely external and have nothing to do with their performance.
If they’re not receiving a raise because you don’t believe their performance warrants one, communicate what you’d need to see from them in the future. Do they need to develop their skills in a certain area? Maybe they need more training, which is something you should arrange for them.
If there is potential for a raise down the line, frame the news as a “not right now” and put an actionable plan in place for them. What steps do they need to take to get there? This shows you’re committed to their professional development.
Let your employee process the news and answer any questions they have. Listen to anything they have to say.
Going forward, we’d suggest having a plan or policy in place to handle pay rises. For instance, if you decide to assess salaries on an annual basis, make sure your employees know when these conversations usually take place. This way you’re less likely to be hit with an ad-hoc request and can properly assess each employee.
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