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When to Give Your Employees a Raise

Plants growing out of money piles

Your employees make your company successful, so why not show them that you value their work? Giving raises is one of the best ways to show your employees that you care about their dedication and hard work. Not only will raises motivate employees, raises can also help your business. Employers often use raises as a way to increase retention at the workplace. When you offer a competitive salary or hourly wage, employees will not look for work elsewhere, which prevents turnover. This will save you the trouble of having to find and hire new employees.

Before giving raises, it’s important to establish criteria for pay increases: what needs to be done in order to increase pay and how much you are willing to compensate. Next, you’ll want to make sure that you have a system which can accurately store employee information. You’ll want to store employee information so that you can reference back to your documents when it’s time to give a raise., for example, has a Human Resources system. You can store employee performance reviews and annual reviews to keep track of employee progress. After your policy is established and employee information is accurately stored, you can choose form many different types of raises.

Reasons to increase pay

  • Performance: The employee is going above and beyond what they are expected to do at work. They are getting work done, even before the deadline, and they are looking for ways to help grow the business. This employee isn’t the average employee.  
  • Cost of living: Cost-of-living raises typically are done company-wide. This raise is a direct result of the economy. Inflation drives up the cost of goods, which is turn increases the cost of living. When the cost of living rises, you can give your employees a raise so they can keep up with the economy.
  • Merit Raise: Merit raises are given when an employee earns a new skill set: I.e. becomes a Certified Public Accountant or obtains a Human Resources certificate. Merit raises are typically only given to employees based on performance and company goals.
  • Length of service: Employees who work at companies for long amounts of time get periodic raises. Most companies give raises during big milestones like 10 or 20 year anniversaries.

When to give raises

Businesses give their employees raises at different times, this really depends on your company. Some businesses give raises on an annual basis, while others give raises quarterly. Some businesses give employees raises when they feel as though the employee earned it, which can be random.

How much should a raise be?

Deciding how much of a raise to give an employee can be difficult. According to some, pay raises range anywhere from 1%-5%, but average about 3%. Their raise percentage is really dependent on how much they are bringing to the company versus what their current compensation is. Some businesses use a return on investment  (ROI) calculation to see if the raise would be worth it.

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