How to Conduct a Staff Salary Review in 2022
July is traditionally the time to review staff salaries. But it’s no easy task with covid recovery, inflation, the Fair Work wage decision and a competitive labour market all thrown in the mix.
Before I get stuck into this post, I want to say thanks to everyone who supported the launch of my book Great People Great Business. With your support we reached number one in the business leadership category on Amazon, which was fantastic, and now I’ll always be an Amazon bestseller. Thank you all for your support!
Great People Great Business is your HR handbook for creating a business that’s ready to scale and grow. It takes you through the entire methodology we use when we work with our clients, including:
- attracting great people into the business
- growing those high performers
- reducing employee turnover
- building a great workplace culture
- retaining great people.
July Salary Assessments
July is normally the time of year that organisations start to think about yearly salary increases because, at least in Australia, this is the start of our new financial year. And in 2022 we’re not only dealing with the covid recovery, but also:
- Fair Work Commission wage decision (see below)
- Inflation and the increasing cost of living
- A highly competitive labour market.
It all makes for a unique year when it comes to thinking about salary increases, particularly because some of these things are fairly recent.
Fair Work wage decision
A lot of people were shocked with the announcements of inflation at 5.1% over the last year. It was much higher than expected, and it’s expected to stay high over the next year or so. We’ll take a closer look at inflation below, but the inflation rate was reflected in the Fair Work Commission decision.
Every year the Fair Work Commission conducts a wage review into the minimum wage, as well as the wages covered by different awards, of which there’s 122. They have a look at the current conditions and take submissions from industry and employee groups, and then come to a determination about how much those minimum wage and award rates need to increase.
The Fair Work decision is something that you should diarise to review every year. It’s generally announced around 15 June each year with the new rates take effect on 1 July, although over the last couple of years, they have delayed some of those effective dates due to the impacts of COVID.
‘The Fair Work decision is something that you should diarise to review every year.’
For 2022, the commission decided to increase the minimum wages in Modern Awards by:
- $40 per week, where the person is currently earning less than $869.60 per week
- 4.6%, for the award rates where the wage is greater than $869.60 per week.
You may have heard media reports about 5.2% increases, that’s because the national minimum wage is being increased by 5.2%, taking it to $812.60 per week or $21.38 per hour.
How does the Fair Work decision affect my business?
Now, you might be wondering, what on earth does this have to do with me? That’s a fair question. And that the answer is plenty, if you have anyone covered by an award. The vast majority of businesses do. I find that most business owners have no idea about their responsibilities in this area until they get into a bit of trouble.
‘most business owners have no idea about their responsibilities in this area until they get into a bit of trouble’
It’s really important that you have done an assessment on every role in your organisation to determine whether that role is covered by a modern award. Most businesses will find they have award-covered employees are people in:
- administrative roles
- technology positions
- some sales positions
What if I pay salaries not wages?
Even if you pay a salary, the award still applies. This is a really important point because business owners often tell me ‘We don’t pay the award, we pay a salary’.
‘Even if you pay a salary, the award still applies.‘
It’s a great idea to pay a salary because it can help with the administrative burden. However, it doesn’t mean that the award doesn’t apply. You can’t remove award coverage by having a contract of employment. This means that you have an obligation, even if your people are on a salary, to check that the salary is at least equal to what they would have earned under the award.
Wage theft warning
A failure to check this was how we ended up with the very high-profile, so-called wage theft cases over the last couple of years.In some cases,the employers weren’t checking that the salary they paid was the equivalent to what employees would have otherwise earned under the award.
Check award rates
So it’s very important to check the relevant award for the new rates required to be paid from 1 July (though some travel and hospitality awards take effect on 1 October). If you pay a salary for a position covered by an award, you need to make sure you still meet those new minimum award rates.
There has been a lot of media since the election campaign about wage increases, and about inflation rates being above 5%. So even if you aren’t required to pass on that Fair Work decision, your employees may be wondering why not?
There are lots of business owners who don’t understand how the award system works, and that there is a yearly wage review. Similarly, I would say most employees don’t understand this either. But they’re reading in mainstream and social media that everyone is getting a 4.6% or 5.2% pay increase.
So it is really important to have a think about the increases you are going to give this year. And how you are going to communicate that to your teams to prevent feelings of discontent, or even risk people leaving the business.
I wrote about the importance of pay equity in my post on Paying Fair. One of the things that’s so critical with pay is that people feel like they’re getting valued for their work, and that it’s equitable. If someone else is working at the same level as an employee doing the same amount of work, that person needs to feel that they’re both rewarded in an equal way.
So let’s say that, like many businesses, you budgeted for this year for 2.5% increase, maybe a 3% increase, communicating the reasons for your decision on paying that percentage to staff is really important.
Check market rates
As mentioned above, the first thing to do is to check that your current salaries are at least equal to the award. The next thing to check is that they’re in line with or above market rates.
There are lots of salary guides out there and they may be helpful to you. But potentially a better way to gauge market rates at the moment is to go on some job boards and see what those roles are paying right now.
We know that the market has been really hot and lots of people are getting more than many salary guides suggest — though this is only for particular roles, not for all of them. It’s important to have a look and ask, ‘if I had to replace those roles, what would the rate be in the market?’.
Communicating with staff
Once you know the market rate you can communicate with your employees to reassure them. You can say:
- we’ve done a check of everyone’s salaries
- in most cases, we’re comfortable that they’re in line with or above the market
- the Fair Work decision is designed for those on minimum wage, and we don’t pay minimum wage, we’re paying you in line with the market (which is higher)
- we’ll continue to monitor the market and adjust as needed
- we identified some staff who are being paid less than the market rate, and we’ll be contacting them directly
- for all other staff, we’ll be implementing a X% pay increase across the board
Now I know that there may be a temptation to put this into an email, but I would resist that temptation. Pay is something that can be quite emotive and personal. An email sent out to everybody will certainly create conversation at the watercooler afterwards.
On this topic, it’s important to control the narrative. You need to know about any feelings of discontent, when people don’t feel that they are being rewarded properly. So this is something you actually need to talk about directly with your employees.
If you have a business with middle management, then you need to have that conversation with the middle management team, and encourage them to have that same conversation with their staff members.
Competitive labour market
The recruitment market is really, really tough right now. In many sectors, there are lots of jobs and not as many candidates. That means you need to make sure that you’re being honest with everybody, and open about what’s happening. You need to take note if anyone says ‘Well, no, I don’t agree with your salary review’.
Because you don’t want somebody to be silently unhappy without knowing about it. They may just go and get themselves another job for an extra $10,000 a year. You could prevent that by having a conversation up front and agreeing to more of an increase if they put forward a strong case. Or perhaps you can come up with another way to reward them.
This year, your salary review needs careful consideration, probably more than in previous years. Make sure you:
- Check that award rate Make sure you understand who is covered by the award, even if you pay salaries
- Check the market rate What would you employees be offered if they decided to look for another position?
- Develop a communication strategy With all the buzz in the media currently, you need to keep your staff in the loop about how and why you came to your decision
A final tip? You may have already budgeted for next year, but consider allocating some more money for wages in the next financial year.
Not legal advice
Note that this is not legal advice and is not to be relied on or used as a replacement for legal advice. I am not a lawyer and I am not giving you information that is specific to your circumstances. It is general information.