Conversations with employees about pay and pay raises can be tricky, especially when economic conditions are tight. We get a lot of questions from our members and employers about pay increases and handling salary discussions, so we’ve put together this page to answer them.
Send us any questions you have and we’ll keep updating this page with answers and best-practice advice.
Updated: 28 March 2025.
Pay increases and salary conversations FAQs:
- What is remuneration and how is it different to pay?
- How much should I be increasing my team’s pay?
- When should I give an employee a raise?
- Do I have to increase someone's pay if they aren't performing?
- What should I say if someone asks for more money than I can afford to pay them?
- How do I communicate a pay raise to an employee?
- If the minimum wage increases for my low-pay earners, should I increase everyone else’s wages?
- Should I be combining/linking pay reviews and performance reviews?
- Where can I go for salary benchmarks for specific roles or positions?
What is remuneration and how is it different to pay?
Remuneration refers to how you recognise, pay, and reward your people, and is a broad package that includes salary or wages, bonuses, and superannuation, as well as any other compensation, benefits, allowances, or incentives they receive for their work.
Pay is more simply what an employee is paid for their work, e.g. an annual salary, wages (usually payment by hourly rate), penalty rates, rate per piece, or commission.
How much should I be increasing my team’s pay?
We typically advise businesses to keep pay in line with market rates and to regularly review salaries so your rates stay in touch with that of your competitors.
There’s nothing stopping you from offering less than market rates - so long as you meet legal minimum entitlements - but you may have to accept unhappy employees or high turnover. You could also increase your pay to above-market rates if you really want to keep and attract talented staff, but it can be costly.
Learn more about remuneration strategies and reviewing pay.
When should I give an employee a raise?
When to give an employee a raise will depend on a number of factors, such as the financial health of the organisation, salary/wage budgets, remuneration procedures, terms of the relevant modern award or registered agreement, or changes to the minimum wage or award rates.
Many businesses choose to schedule pay increases on a specific date, e.g. annually, or when the company passes a significant milestone.
You also have to balance employee expectations, as your people will typically expect a pay increase after they meet performance goals, work for a certain amount of time, or take on new responsibilities.
Whenever you choose to review pay rates, your employees should clearly understand the cadence and criteria (and ideally have some input into them). This will ensure your people feel fairly consulted and rewarded, which in turn builds engagement and loyalty.
Do I have to increase someone's pay if they aren't performing?
So long as you meet the National Minimum Wage or a higher rate set in the applicable award, registered agreement or the person’s employment contract, you don’t legally have to increase anyone’s pay.
We always advise keeping pay and performance discussions separate, to improve objectivity and transparency. If your performance review system is effective it should be able to quickly identify when a person isn’t meeting their agreed objectives, so you can help rectify the situation before the pay conversation comes up.
Want to know more? Read our post on managing employee performance and development.
What should I say if someone asks for more money than I can afford to pay them?
These sorts of issues can be tricky to deal with, as you don’t want to damage a person’s motivation, especially if they are a highly-valued team member. However, if the business is not in a financial position to be able to increase salaries or wages, you only have so much wriggle room.
Building solid employment relationships based on trust and transparency should mean the situation isn’t such a surprise to your employees, and they should understand that it‘s not the right time for pay increases.
Look at what else you can do for people by way of perks or benefits, and keep the conversation open, so that when things pick up, you can explore higher remuneration.
How do I communicate a pay raise to an employee?
Formalise the outcome of the pay review/discussions in writing so both parties are clear as to what the increase is, and when it will come into effect. This can be captured in a letter - there is no requirement to update the employee’s employment contract.
Be sure to communicate any change in pay to your payroll team; there’s nothing worse than increases not being paid correctly once they’ve been agreed to!
If the minimum wage increases for my low-pay earners, should I increase everyone else’s wages?
There is no legal obligation to pay people more than the minimum wage or the minimum rate (and other applicable award entitlements such as penalty rates) contained in the applicable modern award or enterprise agreement, or what is contained in their employment contract.
However, an increase in the minimum wage may be a good time to review remuneration across the company, to ensure your pay scales are fair, relative, and competitive.
Should I be combining/linking pay reviews and performance reviews?
Our recommendation is that performance reviews should not be done at the same time as pay discussions. It’s best if the two processes are done separately, unless the performance review results relate directly to a pay rise or bonus payment, e.g. when the employee meets agreed sales targets.
Remuneration is determined by a number of factors - e.g. minimum pay rates, external and internal market relativity, pay equity, general job performance (the day-to-day), performance review results, length of service, legislation, overall company performance - so the employee’s performance will be one factor to consider when weighing up a pay increase.
However, if the performance review links directly to pay, the review can become a pay negotiation rather than an honest, meaningful discussion process about current performance and future goals and development.
Read our article on why you should separate pay and performance reviews.
Where can I go for salary benchmarks for specific roles or positions?
Getting hold of market pay rates can be difficult for employers. MyHR has unrivalled access to the latest remuneration data, and our expert team can ensure your organisation’s salary benchmarking is accurate and effective across your workforce.
If you need to check your remuneration is competitive or require assistance setting up and running pay reviews, reach out to the MyHR team.
