Changing an employee’s salary rate - Employers’ guide to DOs and DON’Ts
31 May 2019
From time to time, employers may wish to consider offering a pay rise to their staff. This could be because of changes in the law (e.g. where the legal minimum hourly rate of pay changes). It could be because the employer chooses to reflect the increased cost of living to compensate the employee for inflation, or it may simply be that the employer wishes to reward employees who demonstrate good performance in the previous year.
Where you may be considering providing a pay rise to your employees, you should bear in mind the following important principles:
The employee’s salary rate is a contractual matter, (i.e. it is one of the terms of the contract of employment) and so it can only be changed if both parties (employer and employee) agree.
Employers can generally raise an employee’s salary rate unilaterally as it is likely that no employee would oppose the contractual change given that it is entirely in their favour.
Employers cannot decrease an employee’s salary rate unilaterally. This is because an unfavourable change to contractual terms is unlikely to be agreed by the employee. Only in limited exceptional cases, such as following a formal performance procedure, can a pay reduction be imposed.
It is not mandatory for an employer to consider a pay raise every year unless specifically stated so in the contract of employment, which is quite unusual, or the salary rate falls below the National Minimum Wage.
When increasing the salary rate, it must be done fairly to all the employees to avoid discrimination claims or allegations of unequal treatment.
A pay rise can be used as a bargaining tool for employers to make other incidental changes to the employment contract. If you are considering making any changes to an employee’s wider terms and conditions (e.g. company sick pay, holiday entitlement, insurance benefits, pension) then you could consider making a pay rise conditional on the employee accepting the other changes.
In order to effect the change of contract and record the terms of the new agreement, an employer should consider taking the following steps:
STEP 1: Announce the pay raise to an employee by sending an email, having a meeting or putting a notice on the company’s bulletin board if all employees are affected.
STEP 2: Draft a letter to confirm the change of pay and the effective date for the change and issue it to each employee by email, post or hand.
STEP 3: Ask the employee to counter-sign a copy of the letter and return it so that a copy can be held on their personnel file.
STEP 4: Contact your payroll manager and make sure the change will be put into in effect properly.
When making any change of pay, employers should avoid doing the following:
Raise employee’s salary without giving prior notification to the employee or obtaining a written record of the change.
Create illogical or irrational differences among employees when changing salary rates as this may create the risk of a claim from employees for unequal treatment.
Decrease employee’s pay rate unless there is a legally permitted justification to do so.
If you need further assistance or detailed information on matters relating to changing employee’s salary rate, please contact a member of our employment legal team.
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