It is common for annual performance reviews to be conducted around this time of year. It is also common for employees to expect a pay increase alongside their review. In most circumstances, the decision to review an employees’ pay is the employers. If an employer is paying Award rates however, depending on the Award, they may be required by law to give employees a predetermined pay increase.
How to determine whether a pay increase is legally required?
It is a good idea to check whether a pay increase is a requirement under the applicable Award. This is especially important if employees are being paid Award rates. If employees are being paid under Award rates, there are significant fines and other penalties applicable under the Fair Work Act.
In July every year, the Fair Work Commission releases the new Award rates. It is recommended that employers check their applicable Award once the new rates are released and increase the pay rates of any employees that fall below.
What is a salary review and what are the benefits?
Salary reviews play an important role in attracting and retaining employees. Salary reviews are provided to an employee to:
- Recognise increased competence or skill
- Compensate the employee for taking on additional responsibilities
- Acknowledge strong performance
- Align pay with current market rates
- Provide for a cost-of-living adjustment
Depending on the financial circumstances of the business, conducting regular salary reviews can have major benefits to a workplace culture.
What is salary benchmarking?
Salary benchmarking describes the process of reviewing what the market is currently paying for a similar role. This data can be obtained through platforms such as Seek, Indeed, Glassdoor, or others. There are also organisations including Cornerstone HR, that specialise in salary benchmarking that can assist employers through the process.
Although it can often be impossible to find an exact role, in a similar business, with similar responsibilities, it is good to get a sense of what the current market is paying. Taking into consideration the individuality of the role, can determine how far above or below the market rate the business is willing to pay.
It is important to pay a salary that is comparable to what the market is currently paying for a similar role. This is to ensure a business remains attractive to new candidates and also so that they can retain their existing employees. If an employer is willing to pay $10,000 above what another business is offering, the candidate will most likely apply for the role paying higher or, risk existing employees leaving to go to that employer.
Salary review steps to follow
To ensure a fair and equitable process throughout the business, an employer should follow the following steps:
- Decide on the timing and frequency of salary increases and reviews such as annually.
- Determine the criteria to be used to assess the need for a salary increase such as a performance review and salary benchmarking.
- Establish employee goals and targets and discuss these with the employee.
- Evaluate an employee’s performance against pre-determined goals and targets.
- Determine the amount of salary increase to be offered to the employee.
- Consider other conditions that may affect the amount of increase to be provided such as business goals, budgets, market conditions.
- Formalise the salary increase in the form of a letter.
It is important to remember that a salary review process should be done across an entire business, not just the key roles.
It is also important to note that salary benchmarking can take place at any stage in the employment relationship. If an employee seems disgruntled, disengaged, or there is high turnover in the team, it may be time to have a look at what the market is currently paying for a similar role and if that’s the root cause.
Check out our previous blogs, Salary Benchmarking, Motivating Employees, and
HR Myth #5 – Employees Should Always Get an Annual Pay Increase for some more information about managing employee performance.
If you need assistance in implementing a salary review process, or want support in salary benchmarking, get in touch with our team via the chat box here or give us a call on 08 6150 0043.
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