We’ve recently been looking at some common HR myths and helping to clarify where these myths are leading business owners and managers into risky territory, or simply creating unnecessary pressure on businesses.
It seems to be a given that employees get a salary increase every year, but this widespread expectation is another HR Myth!
Why is there an expectation that employees will get annual pay increases?
There are quite a few factors feeding this expectation of annual pay increases, with many employers still believing they must at least provide an increase equivalent to the CPI increase each year. In some cases however, employees are paid well above award rates, and perhaps well above the market rate, are not performing well, and yet still expect a pay increase in July each year.
We’re not saying that employers should not give raises to their employees, after all a salary increase can be an important motivator and useful in retaining valued employees. Pay rate increases should be considered an option as a result of a thorough pay review taking into account not only the employee’s performance, but the market and overall economic conditions, and the financial impact on the business of these and other factors.
While there’s no doubt that most employees would like an increase, you may be surprised to hear that a recent workforce survey conducted by Seek showed that only 24% of employees in the survey believed they should automatically get a raise regardless of their performance. This is possibly reflective of the current job market, and a broader awareness of the impacts of the pandemic on businesses filtering down to individual pay expectations.
When is an employee entitled to a pay rise?
Usually an employer will have the choice as to whether to pay an employee a bonus or give a pay raise. However, there are some situations where employers are legally obliged to increase pay rates each year. These include:
- Where an annual pay increase is agreed to in the employment contract;
- Where there is a policy stipulating annual pay increases for employees;
- An Enterprise Agreement that contains terms about annual pay reviews; or
- If the employee is paid the minimum under a Modern Award, and the Annual Wage review conducted by the Fair Work Commission sets out a rate increase.
Communicating to employees about no annual pay rate increase
Given the current economic climate, businesses that are dealing with the effects of the pandemic, and have been keeping their teams updated on the situation, may find it easier to communicate to their employees that they will not be issuing pay rises at this time.
Depending on the size of your team and culture of your workforce, you may deliver this information in a group email, team meeting or individual review meetings. It’s important to acknowledge the contribution and work that people have been doing during what has been a challenging time for many, and explain the genuine reason for the decision. Most people will be able to understand business decisions that are presented as well considered, responsible and with the long term future of the business in mind.
If you need help managing employee expectations and communicating changes to your team, you may benefit from our outsourced HR service. Want to find out more? Get in touch with our team today or head to our facebook, Instagram or LinkedIn pages to keep up to date with our practical tips and information for business owners and managers.