Most annual performance reviews eventually lead to a discussion about salaries.
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Your small business probably can't afford to give everyone a salary bump – and let's face it, based on their reviews not everyone deserves a pay increase. But there may be some employees whose performance really stands out. Is it legal to give them a raise while keeping everyone else's pay stagnant?
Of course it is. But the way you go about documenting the raise can make the difference between a legitimate wage increase and a lawsuit for wage discrimination. Salary increase recommendation forms create a written record of the reasons why you want to increase a worker's salary. If you fail to adequately document the performance criteria behind the pay increase, you will create the potential for accusations of discrimination based on age, gender, race or other employment categories.
Salary increase recommendation forms are a must for companies in which the interviewer doesn't have the final word about salaries. But other businesses can benefit from them, too, and here are the issues salary increase forms address.
- Most recent review. Salary increases are usually based on the results of performance reviews. Salary increase recommendation forms should reference the date and results of the most recent employee performance review to establish performance as a basis for the salary change rather than an arbitrary management decision.
- Previous raises. The recommendation form should provide a brief recitation of previous raises that the employee has received including dates and amounts. Although frequent pay raises don't necessarily indicate a legal red flag, the wage history should correlate to the worker's performance history.
- Salary range. Your salary increase recommendation should identify the employee's salary range in accordance with company policy. If the recommended increase exceeds the salary range described in company policies, it will be difficult to justify the salary increase and you could have a serious problem on your hands.
- Justification for increase. Clearly state the reason why you are recommending a wage increase at this time. Employee retention is probably not a good enough reason. You'll need to directly relate the wage increase to current performance and quantifiable outcomes (if possible).
- Type of increase. Identify whether the raise is a bonus, a merit increase or a cost of living adjustment. It's much harder to justify a cost of living increase for a single employee than it is to justify a performance-based bonus or merit increase.