Whether you need to plan employee raises in order to comply with the new overtime rules, or if implementing annual salary increases is part of your company’s compensation package, the following will advise you to think strategically about these higher labor costs your business is expecting to incur.
After a year of successful business and growth, it is common for businesses to reward their employees with a pay or salary raise—but are you well-equipped enough to handle the ensuing budgeting and paperwork? Few people will dispute the importance of raises, but establishing a decent rate for employee raises can be a challenging task, especially for small businesses.
Here are a couple of tips to get you started.
Why Give Employees a Pay or Salary Raise?
Raises are ideal for a couple of reasons. For example, they convey an elevated sense of professionalism and security to employees. Offer an annual raise as part of a standard hiring package, and the candidate pool will grow to include more competent staff.
Providing raises will also help maintain your status as a competitive company. A consistent raise is one of the many fine lines that separate highly professional businesses from general service jobs; you want your employees to feel valued and supported as professionals, and they want to have a sense of progress. Giving them a raise is one simple way to accomplish those goals while simultaneously retaining your investment.
How to Establish a Budget
If you plan on linking performance and pay, you should consider creating a merit increase matrix—a tool that compares employees’ performance with an appropriate increase in compensation. For example, an employee who performs at an “outstanding” level according to your company’s criteria might see an eight percent increase in salary, whereas an employee with a “needs improvement” designation would only gain three or four percent. This is a relatively straightforward way to reward high performance.
The Payscale Index is also a great resource for determining roughly how much your employees deserve to make at the current market function. Once you figure out their approximate value, you can calculate the percentage their raise ought to be—somewhere at or above the market’s increase. This will both ensure that your employees are equipped to handle inflation and guarantee that they see a reward at the end of the year.
From the business and financial side of things, you also need to address the increase in labor costs in your business planning and budgeting. If your percentages are determined, you can save and allocate the funds to cover the increase in salaries to keep your expenses balanced. According to a recent WorldatWork Salary Budget Survey, most U.S. organizations are budgeting 2-4% for their employee pay increases. Plan early and plan ahead.
If you are logistically incapable of offering a monetary raise, don’t stress! Employees tend to value similar things at small businesses—the ability to work from home, longer break periods, or a coffee bar, for example. Material motivation is still one of the most widely respected and sought-after incentives, so listen to what your employees desire and figure out what is feasible for your budget.
Another way to ensure your employees’ retention without breaking the bank is to offer them equity. Employees who own shares in your company have a vested interest in its success—and are thereby less likely to migrate elsewhere—and equity is far less likely to break the bank than a sweeping pay or salary raise.
In addition to material or monetary compensation, make sure your employees feel appreciated and needed. Simply taking a moment here and there to address their worth to your company and the value of their work will go a long way.
Don’t let a small budget stand between you and the dedicated staff you deserve. To learn more about setting a pay or salary raise budget, call Abacus Payroll at (856) 667-6225 today!