Pay raises in Australia

Inflation has hit hard in Australia this year, with costs jumping for essential items like food, fuel and energy/home heating. With expenses increasing across the board, companies that pay staff in Australia may find staff start to ask about pay raises. 

There are different ways to handle this question without increasing the risk of losing good people. 

When are staff entitled to a pay raise?

When you pay staff in Australia, it is generally left entirely to the employer’s discretion as to when staff receive a pay raise. 

Pay raises usually depend, on three factors:

1. Contract conditions: Sometimes, a staff member’s contract stipulates that they are entitled to a raise when they meet specific requirements. If they meet these conditions, as an employer you must implement a pay raise.

2. Policies: In other cases, the conditions will sit under a company policy rather than an individual contract. Savvy staff will be aware of your company’s policies and employee agreements and there should always be someone on your team who is across this area.

3. Award or enterprise agreements: Awards and enterprise agreements related to pay rates in Australia may force your hand and make you implement a pay raise. Pay raises like this usually centre around minimum wage to counter the effects of inflation. 

Many Australian companies grant staff a pay raise at the beginning of the financial year (which falls on July 1st), after the latest consumer price index (CPI) figures are announced. The amount of the raise will usually match the rise in CPI —for example, over the twelve months to the June 2022 quarter, the CPI rose 6.1%. 

Another way to pay staff in Australia is according to staff members’ key performance indicators (KPI) over the year. A raise may be between two and five per cent, depending on performance. This system may be set up to rotate or follow a ‘scale’ so not all staff members receive a raise at the same time.

Negotiating pay raises

A staff member may come to you asking for a pay raise at any time. Unless it is related to any factor above, when you pay staff in Australia, you are not obliged to grant them a raise.

If you can’t increase their pay, there are other strategies you can put in place to help them work towards a higher salary:

– Help them to upskill: Explain to your employee they are not entitled to a raise at this time but walk them through ways they can increase their skills so they can increase the value they offer to the business in the future. There may be an opportunity for them to access training within the business or they may decide to independently seek further education.  

– Talk about promotion: Allowing an employee a pay raise may soon mean you are inundated with other employees asking for similar treatment. You may decide to discuss having them work towards a promotion instead. 

– Negotiate a raise: Maybe you can afford to give them a raise but not as much as they are asking for. Do some negotiating, and you might be able to find a compromise that works for both you and your staff member.

What to do if you can’t afford a pay raise

It’s difficult to give your staff raises when so many other business costs are increasing and profit margins are dwindling. 

To add to this, the superannuation guarantee has increased to 10.5%, which means your staff are receiving a pay increase of sorts. 

If offering more money is absolutely off the table, there may be other ways to add value to the workplace experience. Consider exploring:

– Flexible working hours

– Working from home options

– Staff discounts

– Novated car leases (where the employee salary sacrifices their car payments in order to reduce the amount of tax they pay

– Real-time payments (access to pay each day rather than fortnightly or monthly for a small fee)

– Equity (or company shares)

– Incentives like weekly free lunches or Friday drinks

– Subsidised childcare 

– Subsidised health insurance (most Australian businesses do not pay for health insurance) or gym memberships

At this point in time, what’s most important is to be clear and honest in your communication. People always have the right to ask for a pay raise and you have the right to reject the request but there are ways to do so without impacting the relationship. 

Want help in understanding how pay raises work for staff in Australia? Talk to APEO today.