Employee Raises for 2018: Things to Consider

Employee Raises for 2018: Things to Consider

All the dust generated by January tax filings and form generation should settle by the end of the month. The next task is to start thinking about performance reviews and, inevitably, the raises staff members will be expecting. February and March can be a tricky time for companies who use the weeks immediately following the busy tax season to evaluate staff members for the coming year.

Raises are an especially touchy subject. Team members obviously feel like they have the right to a raise as long as they have been faithful to their jobs over the last 12 months. Employers may be more than willing to give raises, but they also have to keep the bottom line in mind. Furthermore, raises can complicate payroll for small companies.

Employee Performance Reviews

It is probably safe to say that the majority of U.S. employers give employee performance serious consideration when determining raises. A lot of companies make employee performance reviews an annual late-winter ritual. Performance reviews give managers an opportunity to sit down with employees to talk about both the past year and expectations for the coming year.

If we can offer one piece of advice here, it would be this: make sure performance reviews are limited to individual employees. In other words, do not compare one employee against another during review meetings. Comparing only pits team members against one another to the point that money becomes their only motivation for doing what they do.

A better way to do things is to compare the employee's performance against company expectations. How did the employee perform his or her defined tasks in the past year? Does the employee have the capability of meeting or exceeding expectations for the coming year? How can the employee improve performance based on what management expects?

Cost-Of-Living Raises

Some companies and government agencies give across-the-board cost-of-living raises that are completely separate from employee performance. Such raises are tied to the rate of inflation. While they are helpful to the extent that they stabilize real earnings, they can be a disincentive to better performance if no additional raise is given based on a performance review.

When Raises Aren't Possible

We have been in the payroll business long enough to know that raises are not always possible. In fact, the average American employee has seen very little by way of raises in the last decade. But now that the economy is starting to churn, raises will be back on the table for 2018 and 2019.

If raises are not possible for your business, at least consider whether there are other ways to further compensate your workers without directly increasing payroll. Perhaps you can provide free lunch once a week. Maybe you can contribute more toward health insurance or the retirement plan. Perhaps you can work with a local day care center to offer reduced cost enrollment.

When a company cannot afford raises despite wanting to offer them, it is imperative that management explain the situation to employees. Simply ignoring the issue will only foster resentment among team members. A thorough explanation along with a snapshot of the company's finances may even motivate employees to help turn things around so that raises will be available next year.

Though we might specialize in payroll for small businesses, we can tell you that taking care of your employees is the most important thing you can do for your business. Give them raises when you can. When you can't, find other ways to make sure they know they are valued. Your business will be better off as a result.