What you need to know about issuing a pay rise in Australia
Australian wages are an important topic for every business owner. Although regular pay rises are pretty much standard in most industries, every company takes a different approach when it comes to salary increases. Some businesses address pay rises in their employee offer letter or employment contracts, while other companies discuss and issue salary increases during their annual employee appraisals.
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What factors determine pay rises?
Any pay rise in Australia is usually at the complete discretion of the employer. Wage increases are typically based on the following aspects:
Employee performance
The most obvious place to start when considering issuing a pay rise is the employee’s performance. Their latest appraisal should give you all the information you need to know to assess their performance, attitude and conduct.
Did they put in extra hours to complete an urgent project? Did they go the extra mile to rectify a customer complaint? Did they mentor a new staff member? Are they being fairly compensated for important responsibilities? These are all aspects that can make a difference.
Market and competitor rates
Keep an eye on what your competitors are paying their staff in similar roles. You should be aware of the typical market rates and average salaries across your industry to make sure your staff are receiving appropriate wages.
Of course, in Australia, wages and individual salaries will vary depending on your geographical location and business size. It’s therefore worth looking at the minimum and maximum wages and applying this information to your organisation as appropriate.
Value of the employee’s client accounts
Another important factor to consider is the value of the client accounts managed by the employee. Do they look after multiple key accounts? Do they bring in more business than their colleagues each quarter?
If an employee is an asset in this area, they deserve to be compensated appropriately and rewarded for their performance. After all, they are instrumental in the growth of your business.
Special skills
A very good reason for a pay rise is if the employee can demonstrate or newly acquires special skills that set them apart from their colleagues. This could be competence in a rare language that allows you to tap into markets in a different country because you can easily communicate with potential new customers there.
Or it could be the ability to use highly specialised software without requiring training. Perhaps this employee has gone out of their way to train others in a certain program, saving you effort and money.
Any unusual skills that are highly desirable in the market and give your company a competitive edge deserve to be rewarded. Also keep in mind that any highly skilled or specialised employees may be approached by your competitors, who may offer them a more attractive salary to encourage them to jump ship. Offering a pay rise not only shows that you value them, but it can also help you retain them and at the same time boost their commitment to your company.
Length of employment
Every time an employee leaves, this leads to extra expenditure for the company. Recruitment and onboarding can be costly, especially if it needs to be repeated more often than you’d like.
So, employees can add a lot of value by staying with the organisation for a longer period of time. If salaries are attractive, your staff are more likely to be motivated to stay on, saving you costs in the long run.
What is a reasonable pay rise?
According to figures released by the Australian Bureau of Statistics in the last quarter of 2021, private sector wages rose 2.4 per cent over the previous year. Nationwide, Tasmania recorded the highest rate of annual wage growth with 3.0 per cent, and Western Australia the lowest with 2.0 per cent.
This means that any pay rise that falls within this range would be deemed appropriate and customary. And any salary increase exceeding the national average would be considered a big pay rise, although your geographical location needs to be factored in, of course.
In good news for employees, research by WTW Data Services shows that Australian employers are expecting an average salary budget increase of 3.4% for 2022 as they recover from the economic consequences of the pandemic. They hope this increase will help them to attract and retain talent after the challenging years shaped by COVID-19.
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How often should you increase wages?
There are different approaches to determining how often a company increases its staff’s wages.
Some organisations specify in their offer letters or employment contracts that salaries will be reviewed on an annual basis. If that’s the case, this will often be determined in conjunction with their annual employee appraisal or performance review. It’s important to point out here that just because you are required to review someone’s salary at certain intervals, you are not obliged to issue a pay rise if you don’t feel the criteria are met.
Others have no such provision and simply consider raising wages when an employee reaches a certain milestone or closes a particularly lucrative deal for the company. Rather than setting fixed dates for reviews, this approach allows for more flexibility.
In addition, employees may of course also approach you at any time and ask you to consider a pay rise. However, in Australia, you – as the employer – will normally have absolute discretion when it comes to deciding whether or not the employee is entitled to a pay rise.
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How to communicate a pay rise?
Discussing financials can often be a sensitive subject. Although, generally, employees will be happy to receive the good news, some may be disappointed as they expected a higher pay rise or had to wait a bit longer for their wage increase than they were hoping for.
Here are some best practices for communicating a pay rise:
- Discuss the matter in a private, one-on-one meeting.
- Explain the reasons for the pay rise (e.g. inflation, outstanding performance, consistently exceptional work ethic).
- Always specify the new salary amount in figures rather than as a percentage. Everyone will know what $800 means, but 2% can sound rather unspecific.
- Don’t downplay the increase or apologise that it isn’t higher.
- Notify HR about the increase and make sure it is implemented in the earliest possible payroll cycle.
Alternatives to a pay rise in Australia
Despite your best intentions, wage increases are not always feasible, especially if your business is going through a rough patch or is still affected by the consequences of the COVID-19 pandemic. But you’ll be pleased to know that there are a number of alternatives you can offer your staff instead of pay rises.
Some examples are:
- flexible work arrangements (e.g. the option to work from home or have a 9-day fortnight)
- promotion into a more senior role where appropriate
- attractive perks like a company car or shares in the company
- extra training courses and certifications paid for by the company
- additional annual leave
- health and well-being initiatives
Although bills need to be paid, money isn’t everything and non-financial perks and rewards can go a long way in terms of employee satisfaction and motivation.
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If you follow these steps, you should be well prepared for the next pay rise cycle and can make more confident decisions when evaluating each salary increase. Employees will always appreciate it if their hard work is recognised and rewarded. Ultimately, this will benefit your business too, as you will not only be able to retain good, motivated employees but also save recruitment and churn costs in the long term.
