With the end of another year fast approaching, the new year and new beginnings bring much thought for reflection and assessment. As an employer, you may wish to reward employees with either a pay rise or a bonus. Whilst there is unlikely to be any rejection of a reward from employees that receive them, there are some issues to consider before doing so. Read on for three things you should be thinking about when evaluating an employee’s performance and considering some form of financial reward.
1) A bonus becoming part of an employee’s terms and conditions
It is important to consider that whilst a bonus is a generous gesture for an employer to make, where a bonus is given regularly, an employee may be able to argue that the bonus has happened for so long that it is now an implied term of their contract of employment. Even where the contract states that bonus payments are discretionary, this may be overturned by an employment tribunal who may find that the employee’s actual terms and conditions of employment are different to those contained in their contract.
2) A pay rise leading to equal pay challenges
It is important for employers to ensure that employees from varied demographics are not treated differently in terms of rewards because of something that is linked to a protected characteristic under the Equality Act 2010. Where this is perceived, it can give rise to grievances and claims. Employers can use job evaluation methods and audit assessments to identify whether they have an equal pay issue or a gender pay gap, and rectify any issues. Failure to address these issues may lead to legal claims, damaged reputation and decreased staff engagement.
3) A bonus being given fairly
Employers should be careful to consider the assessment structure for deciding which employees may be entitled to a bonus and the conditions they need to meet to qualify for the bonus. Where there is ambiguity, there is the potential for employees to become disgruntled and to question why they’ve not been selected to receive a bonus. Employees may argue that the reason an employer has decided not to award a bonus is because they possess a protected characteristic under the Equality Act 2010 and that this behaviour is directly discriminatory. It is important that employers retain their reasoning for giving bonus’s where they are not equally distributed, preferably with a paper trail in case the decisions are ever challenged.
Other things to consider…
Don’t forget the admin work
Another area for employers to consider where a pay rise is administered is the administrational factors. For example, an employer will need to update an employee’s contract of employment to reflect the new salary. This can either be done by issuing a new contract or by asking the employee to sign a document that states the change of salary and that they are aware that this has now permanently altered their terms and conditions. It is unlikely that the employee will have any objections to the pay rise unless you are changing other terms and conditions as a result of the salary increase.
Consider alternative employee benefits
Sometimes pay rises are required that aren’t discretionary, such as changes in National Minimum/Living Wage legislation. One issue that employers may likely already have witnessed is the narrowing of the pay gap between those employees on minimum wage and other employees that have more responsibility. Where it isn’t an option to increase all employees’ pay, alternative employee benefits could be considered, such as flexible working, cross-training to further their skills or even just a simple, genuine thank you. Studies have shown that direct face to face recognition has more of an effect on employee engagement than the use of technological delivery methods such as email.
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