How to give employees a raise

Published Monday 11 May 2026

Table of contents

• Why giving a raise matters
• Key factors to consider before giving a raise
• How to decide when to give a raise
• How much of a raise should you give?
• How to communicate a pay rise
• Australian legal requirements for pay rises
• Alternatives when a pay rise isn't possible
• Using data to evaluate employee value
• Don't overlook your quiet achievers
• Make pay rises part of good management
• FAQs on giving employees a raise

Key takeaways

• Giving a raise at the right time helps you retain skilled employees and avoid the high cost of recruiting and training replacements. With Australia's Wage Price Index rising steadily, staying competitive on pay is more relevant than ever.
• Performance, market benchmarks, new responsibilities, and cost of living pressures should all factor into your decision. A well-timed raise signals that you recognise your team's contributions.
• Typical pay rises in Australia range from 2–4%, with 5–10% reserved for strong performers or those taking on significantly expanded roles.
• If a pay rise isn't feasible right now, alternatives like flexible work arrangements, professional development, and bonuses can still show employees they're valued.

Why giving a raise matters

Deciding to give a raise isn't just about adjusting a number on a payslip. It's one of the most direct ways to show employees their work is valued, and it plays a significant role in whether they choose to stay with your business.

Replacing an employee can cost anywhere from 50% to 200% of their annual salary when you factor in recruiting, onboarding, and lost productivity. A solid employee retention strategy starts with fair pay. When employees feel underpaid, they're more likely to start looking elsewhere.

Data from the Australian Bureau of Statistics (ABS) shows the Wage Price Index has been climbing steadily, reflecting broader pressure on employers to keep wages competitive. Employees who receive regular, fair pay rises tend to be more engaged and productive. They're also more likely to invest discretionary effort in your business.

Key factors to consider before giving a raise

Before you decide on a pay rise, it's worth stepping back and looking at the full picture. Several factors should guide your decision so the raise feels fair and sustainable for your business.

Employee performance and achievements

Start by reviewing what the employee has actually delivered. Have they consistently met or exceeded their targets? Have they taken initiative on projects or solved problems that saved you time or money?

Regular employee evaluations help you track performance over time. That way, your decision is based on evidence rather than a gut feeling.

Market rates and industry benchmarks

Check what similar roles pay in your industry and region. Tools like PayScale can help you compare salaries and make sure your offer is competitive.

If your pay is well below market rate, you risk losing good people to competitors who are willing to pay more. Staying informed on benchmarks helps you make smarter decisions about compensation.

New responsibilities and skills

When an employee takes on additional duties or develops new skills that benefit your business, their pay should reflect that growth. A role that's expanded significantly since the employee started deserves a fresh look at compensation.

This is especially true if they've completed relevant training or qualifications that add value to their position.

Tenure and loyalty

Long-serving employees bring institutional knowledge that's hard to replace. They understand your processes, your customers, and your culture in ways a new hire simply can't.

Recognising tenure with periodic pay rises helps retain that experience. It also sends a positive signal to the rest of your team about how loyalty is rewarded.

Cost of living pressures

With inflation affecting everyday expenses, a salary that felt generous two years ago may not stretch as far today. Keeping pay in line with the cost of living shows employees you're aware of the broader economic environment.

Even modest cost-of-living adjustments can make a meaningful difference to employee satisfaction and morale.

How to decide when to give a raise

Timing matters when it comes to pay rises. Waiting for the annual review cycle isn't always the best approach, especially if you risk losing a valued team member in the meantime.

Keep an eye on both internal and external signals that suggest it's time to act. Internal signals include strong performance reviews, completion of a major project, or an employee taking on a bigger role. External signals include rising industry wages, competitor hiring activity, or shifts in the cost of living.

If you notice an employee becoming disengaged or hear they've received an outside offer, that's a strong cue. But ideally, you'll make the move before things reach that point. Proactive pay rises are more effective than reactive ones, both for retention and for morale.

How much of a raise should you give?

There's no single formula for the right amount, but some general benchmarks can help you land in the right range.

A standard annual raise in Australia typically falls between 2% and 4%. This covers cost-of-living adjustments and steady performance. For employees who've gone above and beyond, or who've taken on substantially more responsibility, 5–10% is a reasonable range.

For context, the ABS reports that average weekly ordinary time earnings for full-time adults in Australia sit at around $1,975.80. That figure can help you gauge where your employees' pay sits relative to the national average.

You should also be aware of minimum wage movements. The Fair Work Commission announced a 3.5% increase to the national minimum wage from 1 July 2025. If any of your employees are on award rates, check whether their pay needs to be adjusted to stay compliant.

How to communicate a pay rise

How you deliver the news of a pay rise matters almost as much as the raise itself. A thoughtful conversation reinforces the value you place on the employee's contribution.

Frame the raise around the employee's specific achievements and the value they bring to the business. Be clear about what they've done well and why the raise reflects that. This turns a simple salary adjustment into a moment of genuine recognition.

Set expectations for the future at the same time. Let the employee know what continued growth and development could look like in their role. This keeps the conversation forward-looking and motivating.

Have the conversation in person or via video call, not over email. A direct, personal approach shows respect and gives the employee a chance to ask questions or share their own goals.

Australian legal requirements for pay rises

When giving a raise, you'll need to make sure you're meeting your legal obligations under Australian employment law.

The Fair Work Commission sets the national minimum wage and reviews it annually. All employees covered by the national workplace relations system must receive at least the minimum wage, or the relevant modern award rate if it's higher. The National Employment Standards (NES) also set out minimum entitlements that apply alongside any pay arrangements.

If your employees are covered by a modern award, check that any raise you offer still meets or exceeds the applicable award rate. When in doubt, refer to the Fair Work Ombudsman website for up-to-date information on pay rates and obligations.

Keeping clear records of all pay changes is good practice. It helps you stay compliant and provides a paper trail if questions arise later. Understanding the basics of paying employees correctly protects both you and your team.

Alternatives when a pay rise isn't possible

Sometimes the budget simply doesn't allow for a pay rise, but that doesn't mean you can't show employees they matter. There are several meaningful alternatives worth considering.

• Offering flexible work arrangements, such as remote work days or adjusted hours, to support work-life balance
• Investing in professional development through training courses, conferences, or mentoring program
• Providing additional paid leave or mental health days
• Giving one-off bonuses tied to specific achievements or business milestones
• Recognising contributions publicly through team meetings, internal communications, or awards

These alternatives won't replace fair pay in the long run, but they can bridge the gap while your business works toward a stronger financial position. The key is being transparent with employees about where things stand and what you're doing to support them in the meantime.

Using data to evaluate employee value

Making pay decisions based on data rather than assumptions leads to fairer outcomes and stronger business results. The right tools can give you a clearer picture of each employee's contribution.

Point-of-sale (POS) systems can show you which team members are driving the most revenue. Customer relationship management (CRM) tools reveal who's building the strongest client relationships. And payroll software like Xero helps you track compensation history, compare roles, and spot discrepancies.

Set clear key performance indicators (KPIs) for each role so you have objective benchmarks to measure against. This takes the guesswork out of pay decisions and makes it easier to explain the reasoning behind a raise, or the decision to hold off on one.

Don't overlook your quiet achievers

Not every high-performing employee will ask for a raise or make their achievements obvious. Some of your most valuable team members may be quietly getting on with their work, consistently delivering results without drawing attention to themselves.

As a manager, it's your responsibility to recognise these contributions proactively. Review performance data regularly and pay attention to the employees who keep things running smoothly behind the scenes.

When you're building a team, the people who show up reliably and do excellent work without fanfare are often the backbone of your operations. Overlooking them risks losing them to an employer who does notice their value. If you're in the process of hiring employees to grow your team, keep in mind that retaining your current talent is just as valuable as bringing in new people.

Make pay rises part of good management

Giving a raise shouldn't be a one-off reaction to a resignation threat. It should be a regular part of how you manage and invest in your team. When pay rises are built into your management approach, employees feel more secure, more motivated, and more committed to your business.

Xero's payroll software makes it straightforward to manage employee pay, track changes over time, and stay on top of compliance. With everything in one place, you can spend less time on admin and more time growing your business.

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FAQs on giving employees a raise

Here are some frequently asked questions about giving employees a raise.

How often should you give employees a raise?

Most businesses review pay annually, but there's no rule saying you have to wait that long. If an employee's role has changed significantly or market rates have shifted, it makes sense to revisit compensation sooner.

What is a good percentage for a pay rise in Australia?

A typical annual pay rise in Australia falls between 2% and 4%. For high performers or employees taking on significantly more responsibility, 5–10% is a reasonable range. Check current ABS wage data and Fair Work minimum wage rates to benchmark your decisions.

Do you have to give employees a pay rise every year?

There's no legal requirement to give a raise every year unless an applicable modern award or enterprise agreement specifies annual increases. You do need to ensure pay stays at or above the relevant minimum wage and award rates, which are reviewed annually by the Fair Work Commission.

Can you give different raise amounts to different employees?

Yes, you can offer different raise amounts based on performance, experience, market rates, and the scope of each role. The key is making sure your decisions are fair, consistent, and well-documented so they can't be seen as discriminatory.