The HR team is also responsible for passing the information on to the payroll team so that they can implement the salary changes before the next payroll run. Information regarding pay adjustments are typically collected and administered by the HR team. And how to handle pay adjustments correctly to avoid any issues?
Cost-of-Living Adjustments (COLA)
- For payroll software that adjusts payroll easily, explore Hourly today.
- Regularly review decisions for compliance with performance criteria, budgets, and tenure guidelines.
- However, adjustments are typically made based on structured benchmarking and internal pay equity considerations.
- While annual pay reviews are common, many organisations adjust salaries throughout the year in response to market shifts, talent retention needs, legal requirements and internal pay equity concerns.
Regular performance reviews are essential to accurately recognize and compensate these employees. However, they may also entail reductions in pay during periods of financial strain within the company. Salary adjustments are essential for recognizing and rewarding high performers, but they should not be based solely on performance. Automate payroll, reduce errors, and generate audit-ready reports in one platform.
Once a salary adjustment is approved, it’s important to update payroll records to ensure accurate payments in the next pay cycle. During periods of high inflation, businesses may increase salaries to protect employees’ purchasing power. Salary adjustments are a strategic tool that businesses use to manage pay structures effectively.
Changes in wage and hour laws
Under the terms of the FLSA, all non-exempt employees need to receive at least the minimum wage. It is also important that you provide the employee with written notice of the adjustment and include the reason for the change. If you are making a pay adjustment, it is crucial that you carefully consider how you will communicate this to affected workers. This way, you can ensure your company remains competitive within the labor market. If your employees work shifts, you may pay different rates for different shifts.
Market forces
But what exactly is a payroll adjustment? These adjustments help companies comply with equal pay laws and improve fairness across the workforce. An equity adjustment is a salary change made to correct internal pay disparities. By analysing external salary benchmarks, HR teams can identify where adjustments are needed to retain talent, attract new hires and ensure internal equity. The increase is usually a percentage of the employee’s base salary, aligned with economic indicators. Salary reviews should be factored into annual compensation budgets, ensuring businesses can make adjustments without disrupting financial stability.
Step 3: Check for Inequities and Legal Compliance Issues
Whether adjusting pay for an individual or an entire workforce, HR teams should take a data-driven approach to make sure salaries stay competitive without causing internal pay disparities. Pay adjustments need to be structured, fair and financially sustainable. To ensure fair and competitive pay, companies should benchmark salaries regularly. This also helps avoid legal risks related to pay equity laws. While annual pay reviews are common, many organisations adjust salaries throughout the year in response to market shifts, talent retention needs, legal requirements and internal pay equity concerns.
Consider a company that predominantly offers merit increases to younger workers, for instance. This allows you to turbotax review for 2021 double-check whether the change is feasible for the company’s finances. It is therefore essential that you discuss any proposed changes with your business’s leaders. Considering historic pay trends within your industry may help you determine a reasonable adjustment rate.
Document the changes in accordance with applicable wage and self billing of tax invoices hour and employment laws and your company policy. You’ve determined that an employee requires a payroll adjustment. Using an HR software service and expert support like TriNet can help your company with these adjustments quickly and accurately when running payroll. Overtime wages are a frequent adjustment made for nonexempt employees based on the number of hours over the non-overtime threshold in a workweek, typically 40 per workweek. These changes may relate to increases in the cost of living in the area or a market adjustment, or to achieve pay equity.
Internal Equity Adjustments
Raising one employee’s salary without reviewing internal pay structures can lead to wage compression, where less experienced employees earn close to or more than senior colleagues. Failing to benchmark salaries against real-time market data can result in overpaying or underpaying employees. If your salary has changed, it’s because the company has reviewed and adjusted employee pay levels to remain competitive, ensure fairness or comply with legal requirements. To be most effective, salary adjustments need to be structured, data-driven and aligned with company policies. Even without an HR department, our HR software and self-service tools make it easy for you to make payroll adjustments. Even in jurisdictions where notice of the pay or payroll adjustment is not required, employees usually would like to know why.
Notify the Employee
Without it, businesses risk paying too little and losing talent, or overpaying and straining budgets. For example, ensuring employees in similar roles receive equal pay, regardless of gender or background. Many businesses implement COLAs when inflation rises significantly or as part of an annual salary review. Salary adjustments are typically based on structured pay reviews rather than individual requests. While adjustments aim to ensure fairness, they are not always uniform across roles or departments. Pay adjustments are separate from performance-based pay raises.
- A pay adjustment is a change in an employee’s pay rate.
- With its Current Employment Statistics (CES) program, the Bureau of Labor Statistics (BLS) produces monthly estimates of total nonfarm payroll employment.
- And how to handle pay adjustments correctly to avoid any issues?
- Future increases will still be determined through regular salary reviews, performance assessments and industry changes.
- To prevent employee turnover, it makes a 5% pay adjustment in October (outside of the annual pay review cycle), ensuring employees remain engaged while keeping costs controlled.
- Clarifying these objectives helps determine who receives adjustments, how much, and when.
What Is a Payroll Adjustment?
Regulatory changes, such as minimum wage increases or new pay transparency laws, often require salary adjustments to ensure compliance. Transparency around market benchmarking, internal pay structures, and company policy can help employees understand how salary adjustments are determined. It is important to communicate with employees about how payroll adjustments are handled by your company. Making payroll adjustments for employees is an important part of running a business. As demotions are often difficult for both employees and businesses, you may want to seek legal advice when making such pay adjustments.
These adjustments can relate to a single employee or group of employees. There are, however, many other reasons your company may decide to make a pay adjustment. As a result, they may decide to increase all employees’ pay by a certain percentage. While this can pose a challenge, utilizing the rightHR tools can streamline the process, ensuring efficient management of salary adjustments.
Without accurate external comparisons, companies risk falling behind industry pay standards, leading to high turnover or unnecessary budget strain. Our CEO, David Whitfield and Meghann Robson, Head of HR at KP Snacks, shared their insights into pay compression and strategies for staying competitive amidst rising costs in this webinar. Payroll teams should also check for tax implications, pension contributions and compliance with reporting requirements to avoid administrative errors.
For example, from April 2025, the National Living Wage for workers aged 21+ rose, requiring businesses to review and adjust salary structures to meet new legal requirements. While COLA adjustments are not always guaranteed, they can boost retention and employee morale. If an employee is being paid significantly less than their peers for the same role and job duties, an adjustment ensures consistency and fairness. Salary adjustments help maintain fair pay structures within teams and what are debits and credits departments.
Inflation/increased cost of living
Finally, if your pay adjustments relate to merit, you should thank your employee for their hard work and reiterate their achievements. Any wide-scale pay adjustments will affect your business’s overall labor costs. If your pay adjustment relates to an individual employee, you might want to consider the value they bring to your business.
What both approaches have in common, however, is that making payroll adjustments remains a purely manual task, which means that there is a high risk for error and that the level of efficiency is quite low. Even for employees who earn a fixed salary, the payment amount detailed on the payslip may change from time to time. Market data provides a real-time view of salary trends across industries, helping businesses determine whether their pay structures are competitive.
