About 66% of small business leaders globally gave larger-than-usual pay raises over the last 12 months. About 21% of U.S. small businesses described the pay raises as “significantly larger.” How big? The median annual pay of someone who stayed in the same job over the past year grew 7.6%, according to an analysis by payroll and benefits platform ADP.
As long as labor remains in short supply and employees are feeling the squeeze of cost-of-living hikes, these increases will continue. So how can you plan your pay raises accordingly? Consider the following tips.
Don’t ignore your competition:
The economy aside, competitive wages are the most essential factor when it comes to pay raises. Here’s why: While median annual pay raises rose to 7.6% last year, it can’t compare to the payoff of switching jobs. The median pay increase for job switchers last year was double that amount: at 15.1%. A study by The Conference Board found that one-third of job switchers get pay raises of 30% or more in their new roles. In short, it pays to switch jobs. It really, really pays. So, to keep great employees, you need to keep an eye on what your competition is offering.
And if your industry embraces transparency and salary transparency laws spread, you should consider it, too. Pay transparency is spreading like wildfire in the tech sector, for instance. It’s also more expected the younger your candidates are. A whopping 85% of soon-to-be and recent graduates are less likely to even consider a job if the pay range isn’t disclosed, according to a recent Adobe survey.
Rethink your “minimum wage”:
If you employ workers at low, hourly wages, it’s more imperative than ever to understand the true, marketable “minimum wage” in Texas. While Texas maintains the federal minimum wage of $7.25/hour, the average production worker is getting about $16.54 an hour. But manufacturers and others who hire blue-collar workers are having trouble finding employees at even $20 an hour, which is the new minimum wage set for Travis County employees.
“We talk to employers who are proud that they’ve significantly increased their pay to $12 or $14 an hour for roles that have been traditionally minimum wage. That’s a step in the right direction, for sure. But unfortunately, it’s just not enough in many cases,” says Stephanie Grubbs, Regional Managing Director for The HT Group’s Staffing Division.
BUT you don’t have to “keep in step” with inflation:
The prices of goods and services have been steadily increasing, which is why many employers are now offering pay raises to offset higher expenses. A Quickbooks Intuit poll found that almost nine out of 10 (88%) employees mentioned inflation when asking for pay increases this past year. And 68% of small businesses expect pay demands to get more frequent in 2023.
Payscale’s research shows similar results. “When put up against an inflation rate that sits at a 40-year high and a competitive labor market swelling with alluring job offers, the once typical 2-3% increase will likely feel lackluster to many employees,” explain the authors of the 2022-23 Payscale Budget Survey.
That being said, you know that you can’t realistically match inflation dollar-for-dollar with your pay raises, and you may need to educate your employees on why. Feel free to use our blog post on the subject, Your Spendable Income Versus Inflation, to help demystify why worker pay is increasing faster than it has in decades but that it simply can’t be expected to rise as fast as inflation. (Good news for your employees: it doesn’t fall like inflation does, either. While wages are ‘sticky’ and slow-moving, indications show they’ll continue to trend upward even as inflation slows down.)
Don’t beat around the bush:
One of the major benefits of working with a recruiting firm is that it allows you to get to the meat of compensation faster and more effectively than hiring on your own. Outside recruiters have access to salary scale resources and insider knowledge that you may not have. They can also act as an intermediary with job candidates, tackling salary concerns much earlier in the process than you might yourself, which can benefit both the employer and job seeker. So using a recruiter can help you better gauge both pay raises and starting offers that will keep workers happier for longer.