When you’re calculating pay rises, it’s important to think about more than just how much you can afford. You also need to consider the true cost of replacing that employee.
Low pay rises can be unexpectedly expensive
It’s surprisingly common for businesses to offer low pay rises, only for workers to feel undervalued and resign. The employer is left with all the upfront costs of replacing them, plus paying the salary, plus training the new employee and lost productivity as they learn the ropes. And in the current job market, workers find it a lot easier to get work somewhere else.
Some estimates put the cost of a new employee at around 40% of their salary and a 2021 Australasian survey put the price at an average of $23,860 per worker.
Overall, that low pay rise could cost your business a lot more than you bargained for.
Not paying enough might just cost you an employee
If you run the numbers, you’ll see the impact that an insufficient pay rise can have. Let’s say you employ an office manager who is paid $60,000. You offer them a 4% pay rise, which will cost you around $2,400 more each year. With inflation running at over 7%, they feel this isn’t enough and find another job paying $68,000 almost immediately.
If you had provided them with a 10% pay rise, it would have cost you around $6,000 more each year and you would still have your employee. Finding a new employee could cost you $20,000 or more.
Running the numbers
Make sure you understand salaries in your industry, and think about inflation, when you calculate pay rises. Also consider how easy it would be to replace the person and how much value they bring to your business. And think about extra benefits you could offer a valuable team member: do they want more flexibility or a four-day week?
We can run the numbers for you before your remuneration reviews or if you are looking to hire.
If you have any questions about pay rises or hiring this year, get in touch – we’d love to hear from you.
This post was originally written by BOMA and has been updated to make it more personal.
