How to write a no pay rise letter to an employee

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In 2022, the Wage Price Index rose 3.1% and companies are finding it harder than ever to keep pace with rising salaries. With ‘more than half of Australian workers (54%) unsatisfied with their level of pay', employers in a survey conducted by Robert Half identified meeting candidates’ salary expectations as their biggest staffing challenge for the next twelve months.

Rather than shying away from conversations with employees about pay rises in line with tenure or increased responsibilities, it’s important for management to be open and honest because when salary transparency is done well, it can help build workforce loyalty by building trust in management. This, in turn, leads to better retention.

Nicole Gorton, Director at Robert Half Australia points out: “Regardless of the market conditions, it is critical for companies to have competitive remuneration policies in place to optimise staff acquisition and retention. Employees know their worth, so employers shouldn’t risk losing key players because they are not showing them they're valued at the company.”

However, if no pay rise can be offered, management should write a no pay rise letter to employees. This communication will display a level of transparency and trust. It also provides an opportunity to outline alternative compensation methods.

Writing a no pay rise letter to employees

Taking the time to write a no pay rise letter to employees is not only good managerial practice, but it can help the employee to feel valued by the time taken to craft such a response.

Additionally, a comprehensive no pay rise letter will dictate steps forward. This works to ensure that plans are not only documented but are also in place for the future and help encourage employee retention.

The most integral inclusion in a no pay rise letter to your employees is the reason behind the decision. One business may be in this position due to the financial implications. Another company may look to deny a pay rise because of the employee’s performance.

With this in mind, detailing the reasoning behind such a decision ensures that all correspondence is open and transparent. In the short term, this makes the decision easier to accept. In the long term, it ensures that both parties know the steps that need to be taken to potentially reverse the decision in the future.

Non-pay rise benefits

If denying a pay rise is based on the state of the company’s finances rather than performance-related, consider offering alternative perks. This is an important step as it will help to show employees that they are still valued by the organisation.

Research by Robert Half finds the most valued employee benefits include flexible working hours, early leave at the end of the week, four-day work weeks and annual leave.

This could take the form of starting later in the day and working into the night. Another option is remote work. With more than 40% of Australians working from home, this is appealing to a fair chunk of the workforce.

Other benefits may range from extra paid leave days to a transportation stipend. Companies may even like to show their investment in employees by offering to cover the cost of additional training or education.

If possible, a one-time bonus may be offered. More economical than a sustained pay rise, a bonus will show employees that your desire to compensate them for their work is genuine, if somewhat limited by current circumstances.

Consider how the feedback can be used in the future

A no pay rise letter to employees is the perfect opportunity to explain where an employee’s performance needs improving to garner the requested salary increase. By providing a written performance review of sorts, employees can take ownership of their future circumstances.

With this in mind, the performance management could encompass a directive to further develop skills such as communication and teamwork. The ability to meet workplace metrics might also be mentioned. Taking the time to identify areas for improvement will ultimately help an employee’s career progression and the organisation as a whole.

Related: How to conduct a performance review

It doesn’t end at the no pay rise employee letter

It’s really important that your employee doesn’t feel shut out in the cold after being rejected for a pay rise. So, in addition to serving them with a no pay rise letter, offer to meet with them to discuss the letter’s contents and provide verbal acknowledgement of their efforts if applicable.

No pay rise letter to employees template

Example template if the no pay rise letter is due to business operating reasons:

Dear [Employee’s First Name],

In light of the current economic climate and the impact this continues to have on [Business Name], we are unable to accommodate a pay rise at this time. If the operating environment were to improve, we may consider increasing salaries during the next cycle of performance reviews in [relevant month].

To highlight our appreciation of your work, we would like to hold discussions about other avenues for compensation [such as flexible working hours or additional paid leave days].

With regards,

[Employer Name]

Example template if the no pay rise letter is due to performance reasons:

Dear [Employee’s First Name],

Based upon current performance reviews [Business Name] is unable to provide a salary increase in line with the annual pay review.

We will continue to work with you to achieve improved performance in [key areas such as communication, leadership etc] over the course of the next year.

Should you have any queries over the nature of this letter, please feel free to arrange an opportunity for further discussion.

With regards,

[Employer Name]