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Navigating pay rises – recruitment and the cost-of-living crisis

Four in ten private sector employers are still reporting problems with hard-to-fill vacancies, according to the latest labour data from the CIPD.

Suzi Jordan
Suzi Jordan Marketing Coordinator
Employers are responding to the dual problems of applicant shortages and a lack of technical skills by upskilling existing staff and raising wages, the report shows. With many firms having to increase employee duties to cover gaps left by unfilled roles, it comes as no surprise that wages are hot news right now. 

CIPD data, as of Spring 2023, shows that – of those firms planning a pay review in the next 12 months – 45% expect to increase workers’ wages, with private sector pay awards forecast to remain at 5%. The CIPD say that many people will also benefit from incremental progression, bonuses, or a pay bump when switching jobs.  

Inflationary squeeze

Employers are in no doubt how tough the economic climate is for everyone right now. Although the UK economy seems to have dodged a technical recession, it’s against a backdrop of supply chain disruptions, energy price rises, food inflation up to more than 19% and the highest level of interest rates in almost 15 years. 
Alongside retention and recruitment, the cost-of-living crisis is possibly the biggest HR challenge faced by organisations this year due to the impact on employee finances, health and wellbeing. Employers will be looking to put the right strategies in place to support their workforce, with pay an integral part of this.

Pay rise obligations

You are not legally obliged to give a pay rise, annually or otherwise, unless any of the following apply to your employees:

  • They receive the National Minimum Wage or Living Wage. The government regularly reviews and updates these rates, and employers must adhere to the changes.
  • They have an annual pay rise in their contract

Additionally, if you’ve always given a pay rise each year for several years, you might be creating an implied term for pay rises based on custom and practice. Implied terms happen when employees have:

  • A reasonable expectation of receiving a benefit
  • The benefit is well established over time
  • The benefit is clear and unambiguous
Whether or not you have created an implied term will depend on how long you’ve done this for and what staff have been told. 

Equal Pay Legislation

UK law mandates that employers should provide equal pay rates to employees doing the same work, regardless of their sex, race, age, or any other protected characteristic. The Equality Act 2010 outlines employers' legal obligations to practice fairness in terms of pay.
Make sure that any pay increases you do award are fair across the workforce and not discriminatory. For instance, if you’re paying male staff more than female for the same job, then you could be open to a sex discrimination claim.  

Other considerations

Many employers choose to develop a transparent pay policy where they clearly state the criteria for pay increases. Such a policy might include factors such as employee performance, length of service, market rates, and the company’s financial situation. Sharing this information can eliminate misunderstandings and maintain trust between you and your workforce.
A fair and consistent evaluation process is essential for maintaining employee trust and fostering a positive workplace environment. Conducting regular employee appraisals, providing constructive feedback, and offering support for professional development can contribute to achieving this. By setting clear expectations and providing employees a chance to grow in their roles, it’s easier to make informed decisions regarding pay rises.

Regular Review of Market Rates

Stay informed about the current market rates for your industry as you may want to make necessary adjustments to your employees' salaries to remain competitive. This can help avoid losing valuable staff to competitors offering better pay packages.
Recognising and rewarding exceptional performance is a sound business strategy. Retaining top talent within your organisation by providing appropriate pay rises can contribute to overall business success.

When a pay rise is not possible 

If your business is not in the right place to award a pay rise right now, how do you make sure your staff feel valued and remain motivated? 
You could consider offering:
  • a one-off bonus
  • a one-off cost of living payment
  • more attractive working conditions such as flexible working; working from home; changes to working hours; a 4-day week without losing pay; incentives such as gym membership or subsidised travel costs

WorkSmarter’s team of dedicated HR consultants are here to assist you when you need guidance. We’ll help you navigate any HR challenges, and our experts will give advice that’s tailored to your specific situation. For more information about this service, contact us today at [email protected].

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