Your Guide To Creating a Salary Increase Letter (Plus Free Template)
The growing skills gap and labor shortages has created a candidate and employee-driven market. The result: Worker’s salary expectations have changed, and stagnant wages just won’t cut it when retaining employees. We give you top tips on when (and how) to create a salary increase letter.
Salary increases can be good news for everyone. When HR issues a salary increase letter (or a pay increase letter), it often means that an employee has been performing well and certain milestones have been met or achieved targets.
Salary increase letters also give HR professionals an opportunity to outline new job responsibilities and can be referenced by managers and HR professionals when future salary increases are determined.
Contents
What is a salary increase letter?
When is a salary increase letter created?
What is HR’s role in salary increases?
Checklist: How to write a salary increase letter
Tips for writing a great salary increase letter
Template: Free sample salary increase letter to employee
FAQ
What is a salary increase letter?
A salary increase letter is a formal document an employer provides to an employee to communicate an increase in the employee’s salary. It is usually issued by the HR department and serves as an official record of the salary adjustment.
The increase letter provides the employee with details about their new wage and the effective date of the increase. It typically outlines the reason for the raise and may reflect the employer’s recognition of the employee’s value to the company, performance, or changes in the market.
When is a salary increase letter created?
A salary increase letter helps to ensure transparency between the employee and the employer around compensation. It can also be used as a great motivational tool and can positively affect employee job satisfaction and company loyalty.
According to a recent Glassdoor survey measuring key drivers of employee satisfaction, culture, and values topped the list at 18.4%, with compensation and benefits coming in last at 10.9%.
However, Glassdoor points out that compensation might not be the foundation of satisfaction, but it is important for new hires. As an HR professional, you can use a salary increase letter to align an employee to the company culture and values (which the statistics tell us are important) and make employees feel valued and seen.
Let’s take a look at the various situations where salary increase letters can be used and how to make the most of them as an HR professional:
- Annual performance reviews: Linking salary increases to performance outcomes is a tangible and measurable way of tracking how well an employee has met their key performance indicators (KPIs). A salary increase letter is also a great way to say well done and thank you, with an attached reward, adding more recognition and value to the overall employee experience.
- Merit-based increases: Employers may reward employees with a salary increase for exceptional work performance, achievements, or contributions that go above and beyond their normal job duties. This does not necessarily need to align with a performance review.
- Promotions: When an employee is promoted to a higher position, a salary increase letter is given to reflect the new responsibilities and the higher level of compensation associated with the new role. It is a measurable way to ensure the employer and the employee agree on the new job scope, aligned with the new compensation and benefits.
- Job changes: A salary increase letter formalizes the change if an employee transitions to a different role within the company that warrants a higher salary.
- Market adjustments: Companies may adjust salaries to align with the current market rates for specific roles to remain competitive and retain talent.
- Cost of living adjustments: To accommodate inflation or changes in the cost of living, employers might provide salary increases to ensure that employees’ earnings are sufficient to meet their needs.
- Contractual increases: In some cases, salary increases are predetermined in employment contracts or collective bargaining agreements, and a salary increase letter is provided when these increases are applied.
What is HR’s role in salary increases?
As an HR professional, you play a critical role in the process of salary increases within your organization.
The HR department is instrumental in developing, implementing, and overseeing compensation strategies that align with a company’s goals and budgetary constraints. In larger organizations, this includes setting pay grades and salary ranges that match job roles within the organization and ensuring that if an employee moves into a new salary band, their compensation is adjusted accordingly.
HR professionals typically work closely with department managers to evaluate employee performance. This collaborative process helps to determine which employees are eligible for raises based on performance metrics and other predetermined criteria. Managers may also rely on your expertise to understand a reasonable performance increase in various positions.
It’s up to you to ensure that the organization’s salaries are competitive. Conduct market research, study industry standards, analyze job market trends, and gather data on pay practices to inform salary decisions.
Once a decision is made, HR is also responsible for communicating salary increases to employees, which is where the salary increase letter comes in. This involves drafting clear and concise communications that detail the new compensation, the reasons for the increase, and the effective date.
HR tip
Make sure all salary increase decisions are compliant with local, state, and federal employment laws and regulations, including equal pay acts, minimum wage laws, and anti-discrimination laws.
Checklist: How to write a salary increase letter
Step 1: Plan your letter
Jot down who is receiving the letter, why they are getting a salary increase, and what the increase is. Include any additional requirements or job responsibilities.
→ Do this:
- Check with the line manager about what to include in the salary increase letter, such as dates of the new salary increase, new job responsibilities, or any other information specific to the employee.
Step 2: Create an outline for the letter
Create a clear structure for the salary adjustment letter. Start with an opening paragraph, followed by the body of the letter where the main points are explained, and end with a concluding section that congratulates the employee or provides any additional information.
→ Do this:
- Start by capturing key details in bullet points before writing the letter to ensure you have covered all critical points.
Step 3: Write the salary increase letter
It’s time to flesh out your key points and create your written communication. Ensure all key areas are complete:
- Begin the letter by addressing the employee, including the company’s name, address, and date of sending
- Craft a concise introduction in a paragraph to set the tone for the letter and highlight the main points
- Develop the body of the letter to explain the salary increase, including details such as the percentage increase, the previous salary, and the new salary
- Next, expand on the reason for the increase. Either highlight the employee’s key performance and how it is being rewarded, a change in position and job responsibilities, or a response to market changes
- Write the conclusion paragraph. Include the start date of the salary increase and the contact information of a person to whom they can ask any questions regarding any administrative steps.
→ Do this:
- Double-check that your written draft covers every bullet point in your outline.
Step 4: Proofread the letter
Read your letter carefully, revise it, and make changes if needed. You should also ask someone from the team to read the letter since they can offer a fresh perspective on the details and potentially notice any gaps or mistakes.
→ Do this
- Use a free online grammar tool to highlight any spelling errors or typos.
Tips for writing a great salary increase letter
- Avoid ambiguity about the salary increase amount and the effective date
- Use positive language to reinforce the value of the employee to the company
- Remind the employee that the details of the salary increase are confidential
- Check the letter for any spelling or grammatical errors to maintain professionalism.
- Deliver the salary increase letter in a timely manner, preferably soon after any verbal communication about the raise.
HR tip
A salary increase letter is not only a notification of a raise; it’s a tool for reinforcing the employer-employee relationship. Craft it with care and attention to detail.
Template: Free sample salary increase letter to employee
Your next steps as an HR professional
- Develop a comprehensive communication strategy to ensure that all employees understand how salary decisions are made and the criteria for salary increases.
- Implement a training program for managers on effectively communicating compensation changes and handling employee queries related to salary increases.
- Keep the compensation plan updated to ensure it aligns with changing economic factors, industry standards, and organizational goals.
- Establish a feedback mechanism where employees can voice their opinions or concerns regarding their compensation and the salary increase process.
- Introduce a salary increase simulation tool that allows managers to see the potential impact of salary changes on their department’s budget and overall company finances.
FAQ
To write a letter for a salary increase, follow a structured and professional format. Start with the company’s letterhead to ensure authenticity, and include the date at the top of the letter. Address the letter directly to the employee with their name, job title, and department. Begin with a warm opening and then proceed to state the purpose of the letter clearly: to inform the employee of the salary increase. Specify the amount of the raise, the new total salary, and the effective date of the change. Provide a rationale for the increase, whether it’s due to performance, a promotion, or other factors. Express appreciation for the employee’s contributions and encourage their continued success. Conclude with instructions for any required actions, such as signing and returning an acknowledgment. Close the letter with a formal sign-off, your name, title, and a handwritten signature. Ensure the language is clear, concise, and free from ambiguity to maintain transparency and understanding.
To document a salary increase properly, HR must first record the adjustment in the employee’s personnel file, detailing the new salary amount, the effective date, and the reason for the increase. This should be accompanied by the signed salary increase letter as evidence of communication and acceptance. Next, update the employee’s compensation information in the HR information system to ensure accurate payroll processing and alignment with internal records. It’s also crucial to revise any related documents, such as benefits information, if they are affected by salary changes. Ensure compliance with data protection laws when handling such sensitive information. All documentation should be thorough, precise, and securely stored to maintain a clear audit trail and to support any future references or decisions regarding employee compensation.
Notifying an employee of a pay increase should be handled with care to ensure clarity and maintain a positive impact. It typically involves a two-step communication process: First, a direct conversation with the employee, usually in a private meeting where the manager or HR representative can verbally communicate the salary increase, explaining the rationale and acknowledging the employee’s contributions. This personal approach allows for immediate dialogue and the opportunity to address any questions. Following the meeting, the verbal notification is formalized through a written salary increase letter, which details the raise amount, new salary, effective date, and any other relevant changes to the compensation package. The letter serves as an official record of the increase and should be presented to the employee for acknowledgment and kept in their personnel file. It’s important that the notification is handled discretely and respectfully to preserve confidentiality.
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