Pay reviews are a key part of responsible and sustainable people management. Whether you run a small business or a national organisation, reviewing pay systematically helps ensure fairness, boost employee retention, and keep your business competitive in today’s labour market.
In this guide, we’ll explore what a pay review is, why it matters, how to conduct one effectively, and the common challenges employers face, with tips to help you navigate each stage with confidence.
What Is a Pay Review?
A pay review is the process of evaluating employee salaries or hourly rates to decide if they need to be changed. Reviews might consider internal factors such as individual performance, any role changes and business profitability as well as external influences like inflation, market rates, and statutory changes such as the National Minimum Wage which increase employer costs.
Pay reviews can result in:
- A pay increase
- No change in pay
- Structural changes (e.g. putting in place pay bands or grading systems)
It’s important to distinguish pay reviews from performance reviews, although they may be linked if your business has a performance related pay process. A pay review focuses specifically on remuneration, whereas a performance review evaluates an employee’s contributions and development.
Why Conduct Pay Reviews?
There are several compelling reasons to implement regular pay reviews. At the very least you must ensure you’re meeting statutory pay legislation. That includes:
- Complying with the National Minimum Wage and National Living Wage rates, the current rates can be found here.
- Avoiding unlawful pay discrimination under the Equality Act 2010
- Meeting contractual obligations and collective agreements (where applicable)
Regular reviews help ensure compliance and reduce the risk of costly disputes. Employees who feel underpaid are more likely to start to look elsewhere for a new job. By carrying out regular pay reviews you are demonstrating that you recognise employee contributions and want to retain them and their skills in your business. Wages are a major factor when it comes to attracting new talent. Reviewing pay helps you stay competitive in your sector and with local competitors and avoid losing staff to companies who have higher rates of pay. A clear and fair approach to pay also demonstrates integrity and helps avoid suspicion or resentment among teams. You might not always be able to increase pay to the level that an employee wants, if at all, but at least by holding a review you are able to demonstrate that you are being open and fair to all.
How to Conduct a Pay Review
A well-planned pay review process doesn’t need to be complex, but it should be consistent and evidence-based. First of all decide on the frequency of pay reviews and communicate any relevant timescales clearly to staff so expectations are managed. If appropriate you might also want to detail the frequency in your employment contract or in a company pay policy. Having access to relevant data is crucial in pay reviews, it removes any element of guess work and enables informed decision making. This data can be gathered from a range of sources including the CIPD Labour Market Outlook Report, the Office for National Statistics Annual Survey of Hours & Earnings and specialist benchmarking companies who have access to a wealth of data.
As well as external information it is also important to consider internal company and employee information as part of your pay review process. If you link performance to pay then make sure you have all relevant performance figures from throughout the review period. You should consider if the employee’s role has changed in any way as well, as it might be that they have taken on additional responsibilities since their last review. To ensure the affordability of any increases the financial position of the company must be taken into account and you must be aware of internal pay comparisons so that staff performing similar roles are paid fairly and consistently. Whatever decision you make you should be able to justify, so having a clearly documented rationale is essential. Finally, the outcome of the pay review should be communicated to the employee. Explain pay decisions respectfully and clearly. Even if no increase is given, outlining the reasoning helps employees feel respected.
Common Challenges
Many employers will face a number of common challenges in relation to pay reviews.
Budget Constraints – Many employers worry they can’t afford to raise pay. While this is a real concern, pay reviews don’t always need to result in large increases. Consider alternatives such as:
- One-off bonuses
- Extra holiday entitlement
- Development opportunities
Transparency about financial limitations is key.
Perceived Unfairness – Inconsistencies or lack of clarity can damage morale. Using structured, objective criteria and applying them fairly helps maintain trust and avoid claims of bias and potential discrimination.
Lack of Data – Without external benchmarks or internal records, pay decisions can feel somewhat arbitrary. Make it a habit to track salary trends and job responsibilities so that you can make informed decisions.
A well-run pay review process isn’t just about money, it’s about showing employees that they’re valued and treated fairly. While there’s no one-size-fits-all approach, consistency and transparency go a long way in making the process effective.
Whether your organisation is growing, restructuring, or simply keeping pace with a changing market, reviewing pay regularly is a smart investment in your people and your future.
Do you have any questions about today’s blog, need help in becoming legally compliant with contracts/policies or can we support you in taking away any people pains to give you peace of mind?
If you answered yes to any of the above, just give us a call at CUBE HR on 01282 678321, or book in a FREE 30 Minute HR Health Check here FREE HR Health Check and we’ll happily give your business a full HR overview with our personal recommendations absolutely FREE!
Why not also check out last weeks blog How to Reward and Recognise Your Employees Without Spending a Penny
We also have a YouTube channel with loads of handy videos outlining various HR related scenarios.
