Fair compensation is key to success in your small business — but you can't stop there.
In my experience as CEO at a small company, I've learned that the way you talk about salary is just as important.
Having a salary increase letter ready to go, that you can amend and personalise as needed can have a big impact on your relationship with your team member whilst you deliver the news to them. It takes finding the right wording, and making sure all the correct information is there.
In this blog post, I’ll give you an overview of what a salary increase letter should include, a free template to get inspiration from and do’s and don’ts for when it comes down to writing it.
What is a salary increase letter?
Let’s start with the basics – a salary increase letter is a simple way of letting your team member know that their salary has increased, and giving them written confirmation about the change.
There are three pieces of information you should always include when writing a salary increase letter:
- The date the increase will be effective from.
- The percentage by which the salary has been increased.
- The new annual salary amount before taxes.
Depending on the nature of the increase (change of role, promotion, etc.), you can also incorporate additional information about the role specification, expectations and why the employee has been promoted, but this is not necessary.
Why should you write a salary increase letter?
There are a few reasons why you should think about writing a salary increase letter:
- Performance – a formal recognition of an employee’s outstanding performance, contributions and dedication to their work.
- Promotion or change in responsibilities – it’s important to outline someone’s new role and responsibilities in writing as well as their salary
- Probation coming to an end – often, team members get a pay adjustment and therefore an increase when their probation ends.
- Market adjustments – after performing a benchmarking exercise, it’s common for companies to readjust their employees’ salaries and inform them through a salary increase letter.
- Annual or periodic reviews – communication following reviews is crucial, so you can keep your team members up to date with what was agreed in writing
- Employees asking for a salary increase – team members can put themselves forward for a salary increase if they think they’ve done significant work that deserves it. It can also be the case that they completed a degree or a course and deserve to earn more.
- Cost of living – companies can choose to help out their team members and increase their salaries as financial help.
Salary increase letter template and what to include
At Charlie, we have a team of qualified HR advisors who help companies put together official letters and HR documents. This is what they recommend including in a salary increase letter:
- Start with a salutation
- Express gratitude for their work and say congratulations on their new salary increase or promotion if there is one
- State their new role if applicable, and write up their new salary amount before tax
- Indicate the increase in percentage
- Thank them for their continued efforts and indicate that they should keep this letter for their personal records
- Finish the letter with a salutation and your signature
This is just an example of what it can include – if that’s useful to you, you’ll find below a template written by our HR experts with the correct wording. You can copy and paste or even download in PDF if you’d like to use it.
Salary increase letter template - copy/paste
Hey [Employee's Name],
I wanted to share some great news regarding the salary increase that was discussed. The whole management team has given it the green light as a way to show our gratitude for your hard work and dedication to the company over the past XX years/months.
We genuinely feel lucky to have you on our team, and we all agree that you've had a positive impact on our business performance. So, after careful consideration, I'm thrilled to let you know that:
- Your salary will be increased to XXX
- This change will take effect on xxxx
- It's a xx increase compared to your previous salary.
We believe this raise accurately reflects the valuable work you do for us, and we hope it encourages you to take on more exciting projects with the company.
If you have any concerns or questions about the increase, please book a call with your line manager or our HR team.
Do’s and don’ts when writing a salary increase letter
The concept of writing a salary letter may seem like a straightforward task from the outside, but there are a few do’s and don'ts you should think about before opening up your Word document and typing away.
In the past, I’ve made some of these mistakes myself and I’d like to share with you what I learned from them.
Writing a salary increase letter – do’s
- Express appreciation: it’s important that your team members feel valued and appreciated in the work they do. Take a moment to express gratitude in the letter.
- Highlight performance: if your team member is one of your star performers and is always going above and beyond, this is something you should highlight in the letter.
- Explain the rationale: there are many reasons why someone would have their salary increased, and it’s not just about performance. The letter needs to explain the reason why you’re doing it.
- Be transparent: If you are unable to meet an employee's requested salary amount or if there are other factors preventing an adequate pay rise, it's important to be transparent about it. Inform your team members about any limitations or constraints.
- Offer a meeting: your team members need to feel like they’re being listened to, so you should always extend an invitation to them so they can raise any concerns or questions they may have.
Writing a salary increase letter – don'ts
- Don’t write generic letters: your letter should have a strong impact and be tailored to each employee. Don’t just send off a template, make sure you personalise your template as well.
- Don’t compare employees: don’t put your team members head-to-head. Make no mention of someone else’s performance in your letter. Just focus on the employee you’re writing a letter to and don’t breach confidentiality.
- Don’t make promises you can't keep: there’s no point promising salaries you can’t actually maintain in the long run. Be smart about how you calculate your costs and offer an increase that’s in line with what the company can afford.
- Don't disregard legal requirements: run your salary increase letter by your legal team if you have one, or simply get an HR advisor like the ones we have at Charlie to look at one – legal requirements such as minimum wage and employment contracts are crucial to check.
Salary Increases and challenges for small businesses
Although we would like to reward our employees whenever possible, small businesses often face one major issue: getting the funds to do so.
Whether it’s a bad economic downturn or revenue levels not up to your expectations, there are many reasons why you wouldn’t be able to give your team the salary increases they wish for.
At Charlie, our performance review process allows for team members to get three opportunities to get re-levelled each year.
While this doesn't guarantee a promotion or pay raise on every occasion, it does provide opportunities for growth within the company. This approach also plays a pivotal role in fostering employee retention since many individuals join startups to seek fast-track development compared to bigger businesses.
2 salary increase tips for small businesses and startups
Put a clear progression framework in place
Before you even think about giving someone a salary increase, you need to have a reliable process for professional growth in place.
What does that mean exactly?
At Charlie, we have a standardised way of approaching progression and here’s how it works:
- Every three months, our team members and their managers have a review conversation
- Their performance and progression plan is based on a progression framework that thoroughly highlights what needs to be done to progress between each level of this framework
This gives our team a clear perspective when it comes down to improving their performance and knowing clear expectations have been laid out for them.
Once they’re ready to progress, there will be a conversation about whether this is time for them to get a promotion or raise. A progression framework and clear process ensure everyone is aligned on what the outcome is likely to be, and there are no surprises.
Empower team members to advocate for themselves
Another valuable tip, which I often use in my role as a coach, is to get team members to become their own advocates when it comes to promotions and pay rises.
So, on top of their progression framework, you should think about:
- Encouraging them to gather evidence of their contributions and achievements to the company
- Being transparent enables them to discuss the importance of financial health and how the business can afford to reward them
You see, getting your salary increase process right takes much more than just getting a template.
To ensure you do it properly, you need to have processes in place and know what the letter needs to include legally, as well as make sure it has a positive tone and all the information you need.