At some point, all companies must consider when and how to increase their employees' wages. Regardless of the reason, such as employment factors or legal regulations, all companies should have a consistent policy for giving or denying raises to reduce the chance of discrimination or a disparate impact complaint.
Given the wide variety of job types, there are several reasons for raises, as well as potential impacts to consider when establishing your company's practice. All policies and procedures should include these parameters:
- No increase is guaranteed, even if one was received in the past.
- Increases may be based on various factors, such as performance, company profitability, customer satisfaction and economic factors.
- Increases must not be decided based on any protected group, trait, category or class.
When issuing pay increases, companies should also consider:
- The pay of current or past employees with similar positions or job duties and responsibilities.
- Factors of similarity or differentiation, such as seniority, experience and education.
- Consistency between similar employees in different protected groups, classes and traits.
- The impact on future decisions.
- The effects on the company and department budget.
For annual increases, timing should coincide with the employee's annual performance evaluation, work anniversary or a specified date on the company's calendar. Considerations include pay range for the position, contractual obligations and valid reasons for differentiation.
Raises at the employee's request should be given in response to employee-driven reasons, such as to match a competitor's job offer, in response to the employee's economic situation or for recognition of completed work.
Raises due to internal changes should be provided in conjunction with an employee's promotion, change of duties or a revised client contract. Keep in mind the value of employee's new duties and the position's pay range.
Raises given due to external changes should be in response to state- or government-mandated changes, such as minimum wage, Fair Labor Standards Act (FLSA) exempt salary increases or a new union collective bargaining agreement (CBA). In these instances, companies should consider wage compression and any legal ramifications.
For situations in which raises fall into none of the above categories—such as pay increases offered for no established reason or schedule—factors that should be considered include inconsistent wages between similar employees, lack of budgetary control, low employee morale and disparate impact.
Regardless of your industry or size, pay increases require planning and consistency. To learn more about implementing a solid compensation strategy for your company, visit Affinity HR Group online, a Big "I" Hires partner.