February 18, 2025 • 11 mins
Despite your best efforts to develop a competitive compensation program, there may be times, such as when inflation is elevated or during a tight labor market, that employees increasingly try to negotiate their pay. Listen in as we cover some steps to help employers prepare for and manage pay raise requests:
- [00:46] Understanding applicable laws
- [02:40] Having a compensation philosophy and being open about pay practices
- [03:44] Knowing the market and competitors
- [05:27] Conducting employee "stay" and exit interviews
- [06:28] Evaluating a pay raise request
- [07:45] Communicating with the employee
- [09:25] Considering options beyond raises
This content is based on generally accepted HR practices, is advisory in nature, and does not constitute legal advice or other professional services. ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content. Employers are encouraged to consult with legal counsel for advice regarding their organization's compliance with applicable laws. This content is current as of the published date.
Copyright © 2025 ADP, Inc. All Rights Reserved. The ADP logo, ADP, RUN Powered by ADP, and HR{preneur} are registered trademarks of ADP, Inc. and its affiliates. All other marks are the property of their respective owners.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
(soft beep)
(00:02):
(upbeat music)
- Despite your best efforts
to develop a competitivecompensation program,
there may be times such aswhen inflation is elevated
or during a tight labor market,
when employees increasinglytry to negotiate their pay.
Welcome to "HR{preneur}."
I'm Jim Duffy from MainStreet to your street,
the "HR{preneur}" podcast is centered
around helping small businesses like yours
(00:22):
gain the knowledge you needfrom HR, payroll, and hiring
to time, taxes, benefits, and insurance.
Today, we're joined by Meryl Gutterman.
Meryl is senior counsel
for ADP's Human Capital Management Group,
where she provides guidance
on HR best practices and employment laws
impacting ADP's clients.
Welcome to "HR{preneur},"once again, Meryl.
It's always great to have you on the show.
(00:43):
- Thank you, Jim. It'sgreat to be here today.
- So Meryl, let's start
by talking about some proactive steps
an employer can take
to prepare for employeepay raise questions,
beginning with understandingapplicable laws.
So, can you please providesome background for us?
- Sure.
To start, there are a numberof laws that govern pay,
(01:05):
and some of these laws may also impact
how you handle salary negotiations
or how you develop yourcompensation program.
These include minimumwage and overtime laws.
For example, federallaw requires employers
to pay non-exempt employees
at least the minimum wage per hour
and then over time whenever they work
more than 40 hours in a workweek.
(01:27):
And then, there are a numberof state and local laws
that also have higherminimum wage requirements
and may require overtime underadditional circumstances.
And then also, you should keep in mind
non-discrimination laws.
Federal law and many state and local laws
prohibit discrimination in pay.
So, you should be auditingyour pay practices regularly
(01:48):
to ensure that they're equitable
and any disparities in payare justified and lawful.
And then also, federal lawand a number of state laws
also explicitly give employees
the right to discusstheir pay with coworkers.
So, you should be avoiding rules
or other actions that could be perceived
to restrict an employeesright to talk about their pay.
(02:10):
And then, employersshould also keep in mind
laws that prevent them from inquiring
about an individual's pay history,
under the theory thatasking for salary history
could perpetuate pay discrimination
from a previous employer.
And there are a number of jurisdictions
that explicitly prohibit employers
from asking about or usingan applicant's pay history
(02:32):
to make pay decisions.
- Thanks, Meryl.
Those laws would certainlybe helpful to know
when making compensation decisions.
Keeping those laws in mind, howcan an employer be proactive
about their compensation program,
so that they can beprepared before an employee
asks for a raise?
- That's a great question, Jim.
So sharing how your businessapproaches compensation,
(02:55):
such as how it pays andrewards its employees
and how those practices align
with your business's goals and values,
that can help attract andmotivate and retain talent.
And then, you can also consider
highlighting total compensation,
addressing both direct compensation,
like wages, and salaries,and commissions or bonuses,
(03:17):
and also indirect compensation
like health insurance or paytime off and retirement plans
when you're making job offers,
and also in your employee communications.
And you can also emphasize key points,
such as benefits that can help employees
maintain a healthy work-life balance.
And then after you communicateyour pay philosophy
(03:37):
with your employees,you can encourage them
to ask questions about yourbusiness's compensation plan.
- Thank you, Meryl.
I see the value in havinga compensation philosophy
for your business, but should employers
also be keeping an eye
on what their competitors are offering?
I'm guessing, for example,
if an employee is asking about a raise,
(03:57):
they might also becomparing their compensation
with the job markets going rates.
- Right, that's absolutelytrue and that's a good point.
Employers should haveat least a general idea
of what their competitorsare paying workers
employed in similar situations.
To help with this, employerscan review external salary data
from the Federal Bureauof Labor Statistics,
(04:18):
otherwise known as the BLS,
or they can also look atindustry groups and vendors.
And if you're an ADP client,
you can always leveragesalary benchmarking tools
that we have to help you learn
what employees are getting paid
from similar jobs in their area
and to help determine idealpay wages for open roles.
And then in additionto salary benchmarking,
(04:38):
employers should also understand inflation
that's occurring in their market.
And employers really need to pay attention
to rates of inflation, becauseif an employee's pay raise
is less than that ofinflation, the employee
may feel like they're making less
and their wages aren't going as far.
So, ultimately having anaccurate picture of the market
can help you establishcompetitive pay rates
and help employers respond to employees
(05:01):
who contend that they're underpaid
and are seeking a pay raise.
- Thanks again, Meryl.
The BLS is indeed a greatexternal compensation resources.
Are there others, however,internal resources
that employers should consider as well?
- Yes, employers can also benefit
from using internal resources,such as their own employees,
to stay on top of sentiment about pay
(05:23):
and other areas that relate
to the employees' satisfaction at work.
So for instance, if youreceive notice from an employee
that they're leaving, youcan conduct an exit interview
and find out why thatemployee's leaving the company.
And exit interviews can help you identify
your company's weaknesses,so that they can be addressed
before your next employee leaves.
(05:44):
And then, there's a lesser known practice
known as stay interviews,
and then that can alsohelp you gain insight
into how to retain your employees.
And during stay interviews,
you can ask current employees questions
that address why they'reloyal to the company
to get an indication ofwhat you should keep doing
and why they may considerleaving to get an indication
(06:04):
of what changes you may wantto make to your company.
And stay interviews alsotypically include questions
about what the employee likes most
and least about their job,
what the employer or supervisor can do
to support the employeein challenging times,
and whether the employee believes
that their talents arebeing fully utilized,
(06:25):
and what would make them consider leaving.
- So Meryl, if during oneof these stay interviews
an employee mentions compensation
as a source of dissatisfaction
and they request a raise then,
how should an employer react?
- Well, first, employersshould listen to the employee
and take a pay raise request seriously.
And then if necessary, ask theemployee clarifying questions
(06:48):
such as, "How much of araise are you seeking?"
or "What prompted youto request a pay raise?"
But employers should make sure
to avoid making promisesabout future pay increases.
And if you can, let the employee know
you will consider their request.
- And once an employee asks for a raise,
what should an employer considerwhen making that decision?
(07:11):
- Well, after meeting with the employee,
an employer should considerwhether it makes sense
to meet the employee's request fully,
whether they're somewherein between their current
and desired pay that they could reach,
or whether to make no change at all.
Employers should takeinto account factors,
such as the market, your budget,the employee's performance,
(07:32):
internal and external pay equity,
and also consider what wouldhappen if the employee left
and what the impact would beon coworkers and your company,
and how difficult it wouldbe to replace that employee.
- That's an excellent point.
So, what should an employer do
if they find a pay raiseis, in fact, warranted?
- Well, employers need to makesure that they're following
(07:53):
established pay practices and procedures.
So for instance, sometimes an employee
will receive an increase in pay,
but they will also take ongreater responsibilities.
In such cases, make sure the pay increase
reflects the additionalwork responsibilities.
And employers should keep in mind
that salary and benefitsnegotiations that result in raises
(08:15):
could also lead to potential inequities.
So for example, highperformers who don't negotiate
could receive fewer perks thanemployees who do negotiate.
So, you wanna make sure that your process
is equitable and develop guidelines,
such as negotiating within a salary range
or making changes to allsimilarly situated employees.
(08:35):
And as a best practice,compensation decisions
should be reviewed bymore than one individual.
So, you should have a manager
and maybe a member of yoursenior leadership team
to ensure that internal equity
and alignment with yourcompensation program
is taking place.
But if the employee alleges
potentially discriminatory pay practices,
(08:57):
you should consult legal counsel
to determine your next steps.
Then once a compensation decision is made,
communicate the decisionto your employee in person
and in writing.
If you're giving themtheir requested pay raise,
because of market conditions or merit,
then you'll wanna let them know that.
If you're giving themless than they requested,
you'll want to explain why.
(09:17):
And you can tell them too
that the decision willbe reevaluated annually.
- Thanks, Meryl. That makes perfect sense.
Now, we both know, asmany of our listeners do.
that employers cannot alwaysjust give employees raises.
So, are there other options
if raising an employee'spay isn't the right move?
- Absolutely.
If an employer can't provide a pay raise,
(09:39):
they should consider if thereare other options available
that they may offer tohelp retain an employee.
So for example, they couldconsider a one-time bonus,
such as a one-time retentionor a performance bonus,
and that would only impact a bottom line
in the year that it's given.
If a one-time bonus is within your budget,
it can be an attractivealternative to a pay raise.
(10:02):
Or if an employer is lookingfor a non-monetary option,
an employer could consider flexible work
where the employees eitherwork from home on certain days
or all the time,
and this can help reducethe cost of commuting.
Flexible work schedules canalso help reduce employee stress
and save time by avoidingrush hour traffic.
(10:24):
- Thank you, Meryl.
As always, this has been very helpful.
And as I try to do, I take notes
as you are answering the questions
just to help to capture key takeaways.
So, let me run through these
and please correct me ifanything is incorrect.
So first, review yourcompensation program regularly
to ensure it meets your business needs.
You are aware of market realities
(10:45):
and complies with all applicablelaws, item number one.
Number two, additionally, be prepared
to handle requests for pay raises.
Third, consider financialand non-monetary options.
And lastly, communicate fairly
and consistently with employeeswhen it comes to raises.
So, did I capture them accurately?
(11:06):
- You did, Jim. You did a great job.
Thank you.- Great,
thank you.
Well, this brings us tothe end of this episode.
And again, thank you Meryl,for joining us once again.
We always appreciate yoursharing your expertise with us
on what to do when anemployee asks for a raise.
Presented by ADP, "HR{preneur}" focuses
on the entrepreneurs and business drivers,
who are shaping thegrowth of their companies
(11:26):
and positively impacting thelives of their employees.
With each episode, we'llbring the experts to you.
We'll answer your questions
and help you think beyond today,
so you can discover more success tomorrow.
As always, thanks forlistening to "HR{preneur}."
Be well, and we hopeyou'll join us again soon.
(soft beep)
(00:02):
(upbeat music)
- Despite your best efforts
to develop a competitivecompensation program,
there may be times such aswhen inflation is elevated
or during a tight labor market,
when employees increasinglytry to negotiate their pay.
Welcome to "HR{preneur}."
I'm Jim Duffy from MainStreet to your street,
the "HR{preneur}" podcast is centered
around helping small businesses like yours
(00:22):
gain the knowledge you needfrom HR, payroll, and hiring
to time, taxes, benefits, and insurance.
Today, we're joined by Meryl Gutterman.
Meryl is senior counsel
for ADP's Human Capital Management Group,
where she provides guidance
on HR best practices and employment laws
impacting ADP's clients.
Welcome to "HR{preneur},"once again, Meryl.
It's always great to have you on the show.
(00:43):
- Thank you, Jim. It'sgreat to be here today.
- So Meryl, let's start
by talking about some proactive steps
an employer can take
to prepare for employeepay raise questions,
beginning with understandingapplicable laws.
So, can you please providesome background for us?
- Sure.
To start, there are a numberof laws that govern pay,
(01:05):
and some of these laws may also impact
how you handle salary negotiations
or how you develop yourcompensation program.
These include minimumwage and overtime laws.
For example, federallaw requires employers
to pay non-exempt employees
at least the minimum wage per hour
and then over time whenever they work
more than 40 hours in a workweek.
(01:27):
And then, there are a numberof state and local laws
that also have higherminimum wage requirements
and may require overtime underadditional circumstances.
And then also, you should keep in mind
non-discrimination laws.
Federal law and many state and local laws
prohibit discrimination in pay.
So, you should be auditingyour pay practices regularly
(01:48):
to ensure that they're equitable
and any disparities in payare justified and lawful.
And then also, federal lawand a number of state laws
also explicitly give employees
the right to discusstheir pay with coworkers.
So, you should be avoiding rules
or other actions that could be perceived
to restrict an employeesright to talk about their pay.
(02:10):
And then, employersshould also keep in mind
laws that prevent them from inquiring
about an individual's pay history,
under the theory thatasking for salary history
could perpetuate pay discrimination
from a previous employer.
And there are a number of jurisdictions
that explicitly prohibit employers
from asking about or usingan applicant's pay history
(02:32):
to make pay decisions.
- Thanks, Meryl.
Those laws would certainlybe helpful to know
when making compensation decisions.
Keeping those laws in mind, howcan an employer be proactive
about their compensation program,
so that they can beprepared before an employee
asks for a raise?
- That's a great question, Jim.
So sharing how your businessapproaches compensation,
(02:55):
such as how it pays andrewards its employees
and how those practices align
with your business's goals and values,
that can help attract andmotivate and retain talent.
And then, you can also consider
highlighting total compensation,
addressing both direct compensation,
like wages, and salaries,and commissions or bonuses,
(03:17):
and also indirect compensation
like health insurance or paytime off and retirement plans
when you're making job offers,
and also in your employee communications.
And you can also emphasize key points,
such as benefits that can help employees
maintain a healthy work-life balance.
And then after you communicateyour pay philosophy
(03:37):
with your employees,you can encourage them
to ask questions about yourbusiness's compensation plan.
- Thank you, Meryl.
I see the value in havinga compensation philosophy
for your business, but should employers
also be keeping an eye
on what their competitors are offering?
I'm guessing, for example,
if an employee is asking about a raise,
(03:57):
they might also becomparing their compensation
with the job markets going rates.
- Right, that's absolutelytrue and that's a good point.
Employers should haveat least a general idea
of what their competitorsare paying workers
employed in similar situations.
To help with this, employerscan review external salary data
from the Federal Bureauof Labor Statistics,
(04:18):
otherwise known as the BLS,
or they can also look atindustry groups and vendors.
And if you're an ADP client,
you can always leveragesalary benchmarking tools
that we have to help you learn
what employees are getting paid
from similar jobs in their area
and to help determine idealpay wages for open roles.
And then in additionto salary benchmarking,
(04:38):
employers should also understand inflation
that's occurring in their market.
And employers really need to pay attention
to rates of inflation, becauseif an employee's pay raise
is less than that ofinflation, the employee
may feel like they're making less
and their wages aren't going as far.
So, ultimately having anaccurate picture of the market
can help you establishcompetitive pay rates
and help employers respond to employees
(05:01):
who contend that they're underpaid
and are seeking a pay raise.
- Thanks again, Meryl.
The BLS is indeed a greatexternal compensation resources.
Are there others, however,internal resources
that employers should consider as well?
- Yes, employers can also benefit
from using internal resources,such as their own employees,
to stay on top of sentiment about pay
(05:23):
and other areas that relate
to the employees' satisfaction at work.
So for instance, if youreceive notice from an employee
that they're leaving, youcan conduct an exit interview
and find out why thatemployee's leaving the company.
And exit interviews can help you identify
your company's weaknesses,so that they can be addressed
before your next employee leaves.
(05:44):
And then, there's a lesser known practice
known as stay interviews,
and then that can alsohelp you gain insight
into how to retain your employees.
And during stay interviews,
you can ask current employees questions
that address why they'reloyal to the company
to get an indication ofwhat you should keep doing
and why they may considerleaving to get an indication
(06:04):
of what changes you may wantto make to your company.
And stay interviews alsotypically include questions
about what the employee likes most
and least about their job,
what the employer or supervisor can do
to support the employeein challenging times,
and whether the employee believes
that their talents arebeing fully utilized,
(06:25):
and what would make them consider leaving.
- So Meryl, if during oneof these stay interviews
an employee mentions compensation
as a source of dissatisfaction
and they request a raise then,
how should an employer react?
- Well, first, employersshould listen to the employee
and take a pay raise request seriously.
And then if necessary, ask theemployee clarifying questions
(06:48):
such as, "How much of araise are you seeking?"
or "What prompted youto request a pay raise?"
But employers should make sure
to avoid making promisesabout future pay increases.
And if you can, let the employee know
you will consider their request.
- And once an employee asks for a raise,
what should an employer considerwhen making that decision?
(07:11):
- Well, after meeting with the employee,
an employer should considerwhether it makes sense
to meet the employee's request fully,
whether they're somewherein between their current
and desired pay that they could reach,
or whether to make no change at all.
Employers should takeinto account factors,
such as the market, your budget,the employee's performance,
(07:32):
internal and external pay equity,
and also consider what wouldhappen if the employee left
and what the impact would beon coworkers and your company,
and how difficult it wouldbe to replace that employee.
- That's an excellent point.
So, what should an employer do
if they find a pay raiseis, in fact, warranted?
- Well, employers need to makesure that they're following
(07:53):
established pay practices and procedures.
So for instance, sometimes an employee
will receive an increase in pay,
but they will also take ongreater responsibilities.
In such cases, make sure the pay increase
reflects the additionalwork responsibilities.
And employers should keep in mind
that salary and benefitsnegotiations that result in raises
(08:15):
could also lead to potential inequities.
So for example, highperformers who don't negotiate
could receive fewer perks thanemployees who do negotiate.
So, you wanna make sure that your process
is equitable and develop guidelines,
such as negotiating within a salary range
or making changes to allsimilarly situated employees.
(08:35):
And as a best practice,compensation decisions
should be reviewed bymore than one individual.
So, you should have a manager
and maybe a member of yoursenior leadership team
to ensure that internal equity
and alignment with yourcompensation program
is taking place.
But if the employee alleges
potentially discriminatory pay practices,
(08:57):
you should consult legal counsel
to determine your next steps.
Then once a compensation decision is made,
communicate the decisionto your employee in person
and in writing.
If you're giving themtheir requested pay raise,
because of market conditions or merit,
then you'll wanna let them know that.
If you're giving themless than they requested,
you'll want to explain why.
(09:17):
And you can tell them too
that the decision willbe reevaluated annually.
- Thanks, Meryl. That makes perfect sense.
Now, we both know, asmany of our listeners do.
that employers cannot alwaysjust give employees raises.
So, are there other options
if raising an employee'spay isn't the right move?
- Absolutely.
If an employer can't provide a pay raise,
(09:39):
they should consider if thereare other options available
that they may offer tohelp retain an employee.
So for example, they couldconsider a one-time bonus,
such as a one-time retentionor a performance bonus,
and that would only impact a bottom line
in the year that it's given.
If a one-time bonus is within your budget,
it can be an attractivealternative to a pay raise.
(10:02):
Or if an employer is lookingfor a non-monetary option,
an employer could consider flexible work
where the employees eitherwork from home on certain days
or all the time,
and this can help reducethe cost of commuting.
Flexible work schedules canalso help reduce employee stress
and save time by avoidingrush hour traffic.
(10:24):
- Thank you, Meryl.
As always, this has been very helpful.
And as I try to do, I take notes
as you are answering the questions
just to help to capture key takeaways.
So, let me run through these
and please correct me ifanything is incorrect.
So first, review yourcompensation program regularly
to ensure it meets your business needs.
You are aware of market realities
(10:45):
and complies with all applicablelaws, item number one.
Number two, additionally, be prepared
to handle requests for pay raises.
Third, consider financialand non-monetary options.
And lastly, communicate fairly
and consistently with employeeswhen it comes to raises.
So, did I capture them accurately?
(11:06):
- You did, Jim. You did a great job.
Thank you.- Great,
thank you.
Well, this brings us tothe end of this episode.
And again, thank you Meryl,for joining us once again.
We always appreciate yoursharing your expertise with us
on what to do when anemployee asks for a raise.
Presented by ADP, "HR{preneur}" focuses
on the entrepreneurs and business drivers,
who are shaping thegrowth of their companies
(11:26):
and positively impacting thelives of their employees.
With each episode, we'llbring the experts to you.
We'll answer your questions
and help you think beyond today,
so you can discover more success tomorrow.
As always, thanks forlistening to "HR{preneur}."
Be well, and we hopeyou'll join us again soon.
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