When is the Right Time to Give a Raise?

January 5, 2023
minute read

It’s a pivotal question every business owner must face. At some point or another, employees will ask you for a raise, and it’s often a headache for managers.  

However, when following a compensation strategy, this process doesn’t have to be as stressful.  

An Employee Asked for a Raise: What You Should Do Next

When an employee asks you for a wage hike, you may feel frustrated, or a little insulted. These are normal reactions. Keep in mind that it’s best to not show your emotions. Instead, remain cordial so that your employee feels as though you’re on their side.  

Before explaining why a raise isn’t feasible or putting off their request, ask them to elaborate. When you ask them to provide you with more details, it shows that you’re interested in understanding their position.  

Once your employee has explained their reasoning, let them know that you’ll speak with HR about the matter and get back to them at a later date. While this may not be what they want to hear, you’ve provided them with a professional, yet productive response.  

The Art of Justifying a Raise  

When it comes to employees and salary raises, there are a lot of factors to carefully consider. Many companies find themselves basing that decision on the employee’s reasoning for a raise. For example, their rent has gone up, or their wedding is approaching.  

Your decision to give an employee a raise shouldn’t be based on merit. Otherwise, you’re establishing a risky precedent where another employee could throw a better excuse your way. To avoid this, pay attention to an employee’s performance at work.  

Their organizational skills should also play a role in making this decision. Lastly, consider how their salary compares to industry averages for someone of their skill level, experience, and length of their employment at your company.  

Consider the Cost of Turnover

When deciding whether or not an employee deserves a raise, consider this: how hard are they to replace? Are there candidates with similar experience and skillsets willing to work for a similar salary?  

If the employee is long standing, they could play a major role in your company’s culture. Or perhaps they’re the backbone of their team. This individual would be tough to replace. Additionally, training new recruits can be costly.  

On average, it costs around $4,129 to replace a single employee. With this in mind, it’s possible the new recruit won’t be a good fit. Conclusively, it’s financially smarter to offer a small raise than to replace an unhappy employee.  

How Much of a Raise Should You Give?

Deciding how much of a raise you should give an employee can be the most challenging part. Of course, it should be enough to make an employee feel rewarded. With that said, you don’t want to put your compensation or labor budget at risk.

The average annual raise is typically around 3%. Top performers may earn slightly more than this.  

How can you decide how much a raise should be? It’s best to implement an organizational compensation policy where a promotion solidifies a salary increase.

You Decide to Decline a Request: What You Should Say

To begin, this decision should be made based on a compensation strategy. This is the smarter way to go instead of following instinct. With a compensation strategy, an employee will be more likely to accept your choice without protest.  

When you make a decision based on your gut instinct, an employee has more room to complain and argue. To begin the conversation, tell them you have bad news. Then, present your decision to reject their request.  

Provide them with an explanation and suggest ways they can successfully earn a raise in the future. However, don’t make any promises or guarantees in the process.  

Invest in an Employee’s Training

You want to give a raise to employees who are very good at what they do and have a skillset that’s unmatched by the majority in their field of expertise.  

With that said, companies that truly invest in an employee’s training, teaching them new skills and experience, will increase their earning potential. Yes, they’ll be more likely to ask for a raise, however, they’ll most likely deserve it.  

Better yet, you’ll have a team of productive, skillful employees who can enhance your business’ profits. Plus, if the company is doing well enough, you may consider a salary increase for your entire team.  

Developing a Compensation Strategy

An exceptional compensation strategy goes a long way with performance evaluation. Your hardest working and most talented employees will be rewarded. Regular raises signify that your strongest team members are paid what they deserve even before they ask for a raise.

There are online tools you can utilize to help make this process less stressful, and more productive overall. FRIDAY is a software that was created to revolutionize team management for small businesses.  

FRIDAY Helps Small Business Manage and Pay Their Team  

When it comes to managing, tracking, and paying your employees, additional help goes a long way. FRIDAY is the simplest software created to help small businesses manage, track, and pay their team without any paperwork involved.  

FRIDAY is an easy to use, yet powerful payroll and team management solution.  


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