What to Do When an Employee Asks for a Raise

By Megan Sullivan

3 min read

As a business owner, you understand the importance of having a dedicated and talented workforce. Whether you employ one person or 20, the success of your business depends greatly on the performance of the people you hire.

Of course, all employees want to feel as though they are being fairly treated and compensated. As such, more often than not, this means asking for a raise in salary. But as a small business owner, you also know the stress that salary increases can place on your revenue. And it’s quite possible that one of your employees might ask for a raise at a time when it just isn’t financially feasible.

So what do you do?

The obvious answer is to simply tell the employee “No” and go about your business, but you don’t want to run the risk of alienating an otherwise solid employee. It can take very little for an employee to decide to look for work elsewhere. So in order to keep your employee happy and find a compromise, consider the following steps.

1. Have as Open of a Discussion as Possible

If you cannot grant the employee a raise, try to meet with him or her, and give a brief explanation of why not. You do not need to divulge any financial secrets, but you might be surprised at how far a little transparency can go in building trust.

If revenue is being spent elsewhere, perhaps for things such as equipment purchases or to help offset a bad quarter, be upfront about it. Your employee will trust you more and likely understand why you’re unable to fulfill his or her request.

2. Ask Your Employee What Type of Raise He or She Wants

Not every employee is expecting a 10% increase in salary. And if he or she is, then the employee might also be willing to settle for five. Take a look at your books before you say “No” outright, and determine if there is any room to negotiate. You can also entertain the idea of a bonus or other one-time monetary payout.

3. Set a Timetable

Perhaps Q2, when you’re in the midst of a new fiscal year, isn’t the best time for you to be granting pay increases. If you explain this to the employee, follow it up by telling him or her when you anticipate being able to revisit—or even grant—his or her request at a later time of the year.

Keep in mind, though, that if you set a deadline, you must follow through on it. The employee will come back to you and want to know if any progress has been made since the previous inquiry.

4. Look at Other Forms of Compensation

There are plenty of non-monetary forms of compensation that might be palatable to your employee. Some of the more common ones include regularly catered lunches, flexible scheduling and the opportunity to telecommute.

The reasons employees seek a raise are many and varied. Most want more money, but the motivations behind asking for it might be more complicated than outright desire. For example, an employee might need a raise because his daycare expenses just went up, thus putting a strain on his finances. By offering your employee a flexible schedule or the chance to occasionally work from home, you might be able to ease this burden by avoid a monetary bump in salary. As a result, you save money and make your employee’s life easier.

5. Get Creative

Any service that makes your employees’ lives easier could be considered a benefit. These can include gift-card giveaways, paid time off, medical and financial services, etc. For examples, free gym memberships, regularly catered meals and on-site health screenings are all benefits that can offer employees real cost savings in their everyday lives.

Compensation and benefits are tricky. You want your employees to feel appreciated, but you also want to be sure that your business is turning a profit. By regularly examining your budget, and keeping an eye out for creative types of compensation, you just might be able earn your revenue and keep it too.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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