Why you should keep track of pay rises
18th March 2016
According to the Office of National Statistics, average UK pay increased by 2.9% towards the end of 2015. When your employee knocks on your office door and asks for a pay rise, how should you handle the situation?
The best thing that you can do, in preparation for whatever pay rise questions come your way, is have a comprehensive record of pay rises.
Keeping track of salary changes and pay rises
When you’re recording a pay rise, write down three things:
- the date
- the salary increase
- the total salary
It’s a process that sounds simple, and is of vital importance to your business.
If you have HR records online or on your computer, perhaps stored within your Staff Squared HR software, then you’ll need to update them as often as possible so that they’re always accurate and reliable.
The problem is that updating salary information is a job that’s best done immediately. If you put it off until later in the day, the likelihood is that you’ll forget it. The process for updating information should be quick, easy and intuitive, so that you’re more likely to do it straight away.
What will happen if you don’t record salary changes accurately?
Not recording a salary change can have a number of effects on your business. The most immediate might be that you forget to update payroll information, after promising someone a pay rise. They’re sure to let you know when they next check their bank account and find that they’ve been underpaid!
If you’ve forgotten to update their salary record after you’ve changed their details on the payroll, or if your usual approach is only to store salary information within your payroll system, then you could be setting yourself up for even bigger problems.
When you’re offering an employee a salary increase…
You can’t make an informed pay rise decision, if the figure within a staff record isn’t up to date.
If Employee A received a pay increase from £23k to £25k in 2015, with their payroll information updated whilst their staff record was forgotten about, then you’ll be left with conflicting information. If you’re planning to offer a salary increase to Employee A, and if you check their staff record before making them an offer, then you’re likely to think that they’re still receiving £23,000 per year.
When you offer Employee A a £2k pay increase, based on the £23k salary that you believe they’re currently receiving, what they’re actually being told is that you’re increasing their salary from £25k to £27k. Being clear about the new salary can at least bring this issue to light before you process the pay rise officially, but it’s an embarrassing situation for everyone involved.
Why should you keep salary and pay rise information?
Keeping a salary history record is important for staff review purposes. As well as recording the figures and pay amounts, you’ll want to look back on how often you’re giving raises and how much you’ve increased someone’s pay by. As well as being significant for the individual, this is handy information to have if you’re employing someone new and need to be reminded about the starting salary of others that joined at the same level.
Of course, the most important reason of all is for HMRC records. HM Revenue & Customs will require salary data, current and past, for tax and NI records. Inaccurate and unreliable information can cause a lot of stress for you, as well as potential fines and legal action if HMRC finds out. It’s a statutory requirement to keep this information.
Why is it so important to keep salary information separate from the payroll?
It’s essential that you have an easily accessible record of each employee’s current salary, without needing to look through a detailed payroll document. This should be at-a-glance information, kept in an employee’s file.
Your staff payroll document doesn’t record all previous wages and salaries, which means that you’d be missing some very important data if you simply updated the payroll.
You’ll find that salary queries typically come up in staff performance reviews, when you’re dealing directly with one employee. This isn’t the time to be searching through your payroll software or an extensive Excel document. It helps to have all of the details about one employee in a space that’s specifically for them – their staff record, which will also contain important details like sick days taken, disciplinary steps and performance related goals. Having their staff record in front of you, whilst you’re in the meeting, will enable you to look back over previous pay rises. This information can form the foundation of any salary decisions that you make during an annual pay review.
Other things to remember…
- If you have employees that are earning minimum wage, it’s essential to keep track of any national increases that you’ll need to follow within your business. You should have a system that enables you to quickly check who’s earning minimum wage, and who needs to have their pay raised each time the minimum wage increases. A clear history of pay rates or salaries will allow you to check back, to ensure that none of these necessary pay rises have been missed.
- HMRC has the right to check records going back up to four years (the original record year, and up to three years from the end of that tax year). Penalties of up to £3,000 are in place for incomplete records, and HMRC will estimate how much you owe. Any lost records need to be replaced to the best of your ability – cloud storage, with multiple backups, can almost completely remove this risk. Trying to remember what you’ve paid each employee, for at least the last four years, can be a stressful and time consuming task – and one that’s best avoided!
With robust and secure staff salary records that are updated for anyone that needs to access them, you should avoid unhappy employees and unexpected fines.