As inflation has gone up, many employers have found themselves facing the same questions. Should we increase staff salaries to keep up with inflation? And, how much is an appropriate increase?
Unfortunately, there aren’t simple answers to these questions. Deciding to increase staff salaries at your business depends on multiple factors. But, we’re here to help you figure it out.
Here are five considerations to help you decide if you should increase staff salaries to keep up with inflation.
The Benefits of Increasing Staff Salaries
As you decide whether or not to increase staff salaries, start by considering the benefits of boosting pay at your organization.
- It helps you attract the right staff. The labor market is highly competitive. Candidates have options and may opt for better-paying jobs when given the opportunity to choose between two positions. A competitive salary will help you attract top-tier talent.
- It helps retain your staff. With such a competitive labor market, even satisfied employees may keep their options open. Long-term staff may be willing to make a change if it comes with higher pay.
- It’s good for business. Paying a competitive salary can save your business money. Increasing salaries can be cheaper than hiring new staff when you consider the cost of hiring and training new team members, the loss of productivity when team members leave, and the cost of errors or low-performance work by lower-paid employees.
Overall, keeping your salaries competitive if you can afford it will benefit your business. But, how do you know when the benefits outweigh the costs?
Should You Increase Staff Salaries? 5 Factors to Consider
As you weigh the pros and cons of increasing staff salaries, you have a lot of factors to consider. Here are a few questions that can help you get insights to drive your decision-making.
#1) What’s going on in the current marketplace?
Review salaries against the norms for the type of jobs you offer. Review competitors and consider how your salaries match up. Look at average salaries as they relate to:
- Roles: What is a typical salary for a similar position?
- Industry: Does your industry impact the range of salary employees expect?
- Location: Does the location of employees impact how much you need to pay? How does the area’s cost of living impact salary expectations?
For research, try using LinkedIn’s Salary Calculator to see what employees expect to be paid.
#2) Should each role or individual receive different salary increases?
Even if you decide you want to increase staff salaries, you may not want to give everyone at your organization the same flat rate increase.
Rather than giving everyone the same 5% raise, use this as an opportunity to review each position, or even every person, to consider if the existing pay rate is fair and aligned with the employee’s contribution to your company.
#3) Is this a raise or a cost of living increase?
Use this time to review your raise process as a whole. How does your business typically give out raises? Do you offer annual pay increases? Do you increase pay based on performance?
If you don’t have processes that define your standards, this is a good time to get started. Outline plans and guidelines for how you increase compensation, noting the difference between each type of salary increase. For example, a pay increase due to a jump in inflation might be different from a pay increase due to strong employee performance.
Having salary guidelines that you share with your team can set expectations and give employees a better idea of how they can grow within your organization.
#4) What’s the impact on your business? Can you afford it?
While you may want to hand out raises to everyone on your team, first you have to make sure your business can afford it. Turn to your books before you make any decisions about salary increases.
Review your business budget. Consider your financial forecasting. Talk to your accounting team about how the increase in salaries will impact your bottom line. Use financial information to inform your decisions and determine if you need to make other changes within your business to accommodate increased salaries.
If you don’t have these numbers, work with an outsourced CFO who can help you organize your books to see exactly how salary increases will impact cash flow.
#5) What other benefits can you offer?
Salaries aren’t the only way you can compensate your employees. If you don’t have the funds to directly increase staff salaries, consider other things you can provide to your team.
Can you offer better benefits as they relate to:
- Paid time-off
- Remote work
- Education reimbursement
- Work perks
While salaries are important, you may be able to offer other benefits that are equally valuable to your team.
If you take this direction, don’t assume you know what your team wants. Talk to your employees to get insights into what they need and how your organization can provide benefits that actually improve their lives.
Make Informed Salary Decisions at Your Organization
In a competitive job market, it’s more and more important to offer the right salary and benefits to attract the best team.
If you aren’t sure if you should — and can — increase staff salaries, we’re here to help.
CFO Solutions can help you take control over your finances and determine the best salaries for your team. See how we can help your business create more accurate projections and budgets. Schedule your call with our team today.
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