Employers and employees alike are under the cosh of rising costs. And, given the inflationary pressures all are experiencing, pay is a subject that isn’t going away any time soon. 

But how a request for a pay rise is received by an employer depends on where they are in their usual pay review cycle, the industry in which they operate, and the extent of their competition.

Most employees expect an annual pay increase at least in-line with inflation, which is currently running at its highest rate in 40 years. It’s entirely understandable that employers can’t afford to offer nine or 10% pay increases at the moment, particularly given that employers face national insurance contributions on top.

Many employees are seeing raises in the region of 4-5%, which is well below the current rate of inflation. This means that employees are earning less, so employers need to be inventive with what they can offer to staff to ease the strain on income, at limited cost to them. There are some really novel ideas that tick other boxes as well, such as corporate discounts on energy saving devices, electric cars, and solar panels for home offices.

Setting pay

The way that pay is set depends on the business. In unionised industries, salaries are negotiated between the employer and the union, and this is why we are suddenly seeing a return to strike action when these negotiations are not successful.

In non-unionised businesses, pay is rarely negotiated with employees and is usually determined by the Managing Director or CEO in smaller businesses, and by remuneration committees in larger businesses and PLCs.

Should employers link pay rises to productivity?

Linking pay rises to productivity is already the norm in some sectors, whether that be piecework or team or company performance. However, at the moment, even when businesses are outperforming their previous results, it may still be difficult to give substantial pay rises, especially given that recession is looming. 

Salary sacrifice is one option that can present real advantages for all by offering a tax and National Insurance efficient way of purchasing items such as bikes and cars, and making pension contributions. This may be a better option for employers than a pure pay increase, but it’s not suitable for all situations. Employers have to think about what happens if an employee leaves part-way through the repayment term, and salary sacrifice can’t reduce pay to below national minimum wage levels. 

Industrial action

Strikes and ‘work to rule’ can cause severe disruption to business operations and have a knock-on effect on supply chains; for example, where production is slowed or deliveries can’t be accepted, an employer may breach the terms of its contracts with customers. Employee relations issues can also expose the business to negative publicity.

If collective bargaining agreements are in place, employers should make sure they are followed and the processes they outline are fully exhausted in order to try to avoid industrial action. However, even with the best will in the world, it may not be possible to avoid industrial action altogether. How such action should be handled depends on whether the action is lawful (authorised and endorsed by a union) or unlawful (where employees take matters into their own hands). 

Where action is unlawful, options can include obtaining court orders to prevent a strike, and considering whether disciplinary action against participating employees, including possible dismissal, is appropriate. 

If a non-unionised workforce seeks to become unionised, the employer might want to consider placating staff by agreeing to an informal request for voluntary recognition, which might give the employer more scope to determine the remit of the union. 

The ‘Big Quit’ effect

Some sectors are in the middle of one of the biggest talent wars for years, with employees jumping ship for more money. But the pandemic forced some to re-evaluate their working priorities; some want to work less or from home, others remain loyal to an employer who supported them through the pandemic. Regardless, employers need to tailor their offering to employees.

Benefits such as flexitime, extra holiday entitlement, or even unlimited annual leave, free breakfasts or lunches, and employee discounts can all go a long way to improving the employee’s experience without increasing salary overheads. Some employers are looking more at employee health and wellbeing with support for mental health, new parents, and carers; key issues for women, in particular, in the workplace.

Working extra hours

Another option lies in overtime, but unless it is expressly stated in a contract of employment, employees don’t have a right to it and, depending on the contract, the employee may be compelled to work it, or might be able to decline the offer. 

Overtime can be paid at enhanced rates, but this again depends on the contract. The only statutory requirement is that employees receive at least the national minimum wage on average for all hours worked or treated as worked. Overtime can be a good solution if employers have such work available.