A step by step process for reviewing employee pay fairly, compliantly, and with a clear rationale.
When completing a pay review, there are two separate things to work through: first, compliance with Modern Awards; then, whether a salary increase is appropriate based on performance and business factors. Always work through them in that order.
Check whether the role is covered by a Modern Award. If it is, identify the correct classification and minimum pay rate. Employees must always be paid at least the minimum award rate, even if paid as an annual salary.
If their salary is intended to cover overtime or penalties, they still need to be better off overall compared to the award entitlements. If the current pay no longer meets this, it must be corrected before any other increase is considered.
Each year Fair Work reviews Modern Award pay rates. The announcement typically comes in June, with updated rates taking effect from the first full pay period in July. Check the new rates and confirm your team members are still being paid above the minimum.
Even if you pay above award, this step matters. Award increases can sometimes bring minimums close to what you already pay.
Decide where your business sits in the market: award rates only, or market rates? If paying market rates, decide whether you sit at the lower, mid, or upper end. Use sources like SEEK Salary Insights or industry salary surveys to understand current ranges.
Define a salary range for each role within your business, and apply it consistently.
Before assessing individual pay, confirm current market data for the role. Check SEEK Salary Insights and 2 to 3 salary surveys from recruitment firms. Identify the lower, mid, and upper range for the role in your location.
This gives you a defensible, external benchmark for any pay decision.
Before assessing increases, confirm the employee is eligible for review. Common eligibility conditions include: the business met its financial goals for the year; the employee is not currently in a performance management process; the employee has completed their performance review.
Apply these conditions consistently across the team.
Link pay to performance, not gut feel. Use the percentage of goals achieved during the review period as your guide:
| Goals Achieved | Recommended Approach | Example Range |
|---|---|---|
| 100% of goals | Higher increase | 8 to 10% |
| 85 to 100% of goals | Moderate increase | 4 to 6% |
| 50 to 85% of goals | Smaller increase or CPI | CPI adjustment |
| Below 50% of goals | Address performance first | No increase |
Before finalising, compare the employee's pay against others doing similar roles. Avoid bringing in new hires significantly above existing team members without a clear rationale.
Remember: employees are legally allowed to discuss their pay with each other. Every pay decision should be fair and defensible.
Meet with the employee to discuss the outcome. Cover: a summary of their performance; the factors considered; the outcome; any development priorities for the period ahead.
After the meeting, confirm the outcome in writing using a pay change letter.
Record how each decision was reached. If pay decisions are ever questioned, clear documentation protects both the business and the employee.
Employees can legally discuss their pay with each other. Design your pay decisions with this in mind: every outcome should be explainable.
Even if you pay above award rates, check compliance every July when new rates take effect. Getting this wrong can result in underpayment claims.