Should you give your employees a pay rise this year?

Pay rises are an important issue when it comes to employee retention and with the Great Resignation in full swing, rising inflation and a spiralling cost of living, it’s an even more important consideration this year. Read on to discover whether you should give your employees a pay rise this year.

give your employees a pay rise this year

What is the average pay rise?

According to the ONS, “growth in average total pay (including bonuses) was 4.9% and growth in regular pay (excluding bonuses) was 4.3% among employees in August to October 2021.” However, in the private sector the average pay rise for the whole of 2021 was closer to 2%.

In the latest Labour Market Outlook by CIPD, they state “employers anticipate making pay awards of 3% in 2022 as they look to combat increasing recruitment and retention difficulties.”

Other key findings from their report are “Over four-fifths (84%) of employers are planning a pay review in the 12 months to December 2022. Among these, around four in ten (40%) expect basic pay to increase, 7% expect a pay freeze, while just 1% expect a decrease.”

 

How often should pay rises happen?

It’s generally assumed that salary will be discussed at least every 12 months. Legally there is no right to a pay rise unless it’s stated in an employment contract. However, whether you give a pay rise or not may impact your employee retention rate.

 

Should you give your employees a pay rise

Will the rise in National Living Wage help?

On 1st April the National Living Wage increased by 6.6% to £9.50 per hour, however workers also face a National Insurance contributions and tax rise of 1.25%. Therefore, the rise in the National Living Wage won’t be enough to absorb the increasing cost of living.

The Institute for Fiscal Studies used the example of a worker with a salary of £30,000 in April 2021 (and post-tax income of £24,060) needing to see a pay rise of 7.1% to April 2022 to maintain the same standard of living.

 

Should you give your employees a pay rise this year?

Former Bank of England chief economist Andy Haldane warned of “the sort of wage-price spiral familiar from the 1970s and 1980s” if companies outpace the spiralling cost of living with pay rises. This is unlikely but is a sobering thought.

We have experienced a decade of lost real wage growth since the financial crisis. Due to the increase in inflation and the spiralling cost of living, many employees will be expecting a pay rise. We are all also dealing with a doubling of energy bills this month. This puts pressure on employers to give pay rises across the board for fear of losing their staff.

Ruth Thomas, pay equity strategist at Payscale.com says “Our research supports that perceptions of fair pay are more important when it comes to talent retention than actual pay. So hiking pay for new hires will drive pay compression internally and you actually put more talent at risk.”

The answer seems to be to ask ‘are our employees receiving a fair market salary?’ and adjust employees’ salaries accordingly.

pay rise

 

What can be offered besides a pay rise to help employees with the increased cost of living?

Employers need to be willing to offer understanding and advice if their employees suffer a financial crisis. Something of this magnitude can severely impact on their mental health and performance at work. Help could come in the form of increasing pay frequency or providing financial education programmes.

Other options to help employees with the cost of living could be help with travel costs. Providing higher than statutory sick pay and maternity/paternity pay are also important options to consider. These types of perks not only work for employee retention but will also attract the best talent to your organisation.