Back to basics - how to carry out a salary review fairly and transparently

The UK government has announced changes to the National Living Wage (NLW), effective from 1 April 2024. These changes will apply to all workers aged 21 and over (currently 23 and over) while the rate will increase from £10.42 to £11.44 per hour. For workers paid at NLW rates, this will result in a 10 per cent pay increase, even rising to 20 per cent for some. 

However, that level of pay rise is unlikely to be replicated across an organisation and may lead to challenging conversations about pay reviews for those paid slightly above the NLW.

So how can those challenges be managed? We take a look at some of the strategies organisations can adopt.

Understand the new legislation

Start by understanding the new legislation. The NLW for those aged 21 and over is £11.44 per hour. This increase will impact your salary budget and will also affect employees currently earning just above this rate. We will likely see a ripple effect, with companies needing to uplift salaries for jobs that pay just above this rate too, placing even further pressure on wage costs. 

It is important to also realise that the NLW is not just a rate – it’s a calculation and there are many ways that employers can fall foul of the rules.

Review your current salaries

Review the current salaries of your employees. If their wage is below the new NLW, it’s crucial to plan and budget to increase their pay. This is an absolute requirement. The government recently issued a list of the 500 employers who were not paying the National Minimum Wage due to legislation breaches, potentially causing reputational damage to their brands.

Set your budget

Plan your budget to accommodate the increase in the NLW. Review your salary budget and calculate the amount for salaries and other employment costs, including employer’s National Insurance contributions (NIC) and employer’s pension contributions. Importantly, consider the ripple effect by factoring in those salaries you need to increase, which are close to the new NLW level.

Conduct regular salary analysis

Conduct a regular salary analysis to help identify pay disparities and ensure fair pay. It also ensures your pay stays competitive. There are many ways to check salaries, including checking job boards and speaking to recruitment agencies who often publish salary surveys. For a more rigorous approach, you could use a salary checking service or undertake a formal benchmarking exercise to make sure your people are earning the appropriate rate for their role. This is HR best practice.

Communicate with your employees

Maintain open communication with your employees. Inform them about the changes in the NLW and why such increases are required. Be transparent about the salary review process. If employees understand how you determine market rates and conduct reviews, they are more likely to think their own rate of pay is fair. This understanding will ensure they are happy with their new salary and decrease the likelihood of them leaving your organisation, thereby aiding in employee retention.

Implement changes fairly

Implement the changes fairly across your organisation to ensure all eligible employees receive the NLW (also considering how the rules for compliance apply). Consider the impact of these changes on other employees - those already receiving this rate are likely to require an increase at the same time.

In conclusion, the increase in NLW presents both challenges and opportunities. By actively managing salary reviews, you can ensure fair pay. A well-planned salary review process can contribute to a motivated and productive workforce. 

For a discussion around NLW compliance or how to manage a salary review in your organisation, please contact Kerri Constable or Charlie Barnes.