What should I do when an employee asks for a pay rise?

We’ve had quite a few employers reach out recently feeling a little blindsided when an employee suddenly asks for a pay rise. It’s one of those moments that can make business owners feel cornered – especially when it’s not budgeted for, or the way it’s raised feels more like a threat than a discussion.

One recent caller told us that they dismissed an employee because asking for a pay rise didn’t align with their company values. That might sound extreme, but the employee had said if they didn’t get a rise, they’d consider their options elsewhere. With over two years’ service, that dismissal was a risky move – and one that could backfire under current employment law. And with day one rights to claim unfair dismissal just around the corner, getting this wrong could soon become even costlier.

So, to help employers manage this situation the right way, I sat down with one of our experienced HR consultants, Nita, to walk through the do’s, don’ts, and everything in between when handling a pay rise request.

Let’s start at the beginning.

Is it reasonable for employees to ask for a pay rise?

Nita: Absolutely. It’s perfectly normal – and healthy – for employees to want their pay to reflect their performance, market rates, or rising living costs. The key thing is how they ask, and how the employer responds.

So what should an employer’s immediate response be?

Nita: First and foremost – don’t react emotionally. It’s best to thank the employee for raising it, let them know you’ll consider the request seriously, and agree to come back to them with a time frame for your response.

Should the request always lead to a pay rise?

Nita: Not necessarily. A request doesn’t equal entitlement. But it is an opportunity to assess the role, the individual’s contribution, and how that aligns with business performance and budget.

What if the employee gives an ultimatum – like “give me a raise or I’ll leave”?

Nita: That can feel confrontational, but it’s still a form of communication. The worst response is to take it personally or retaliate. Instead, try to understand the root of the dissatisfaction and explore options. Dismissing someone for making a pay request – especially one with over two years’ service – could lead to an unfair dismissal claim.

Speaking of which, what are the risks if an employer does dismiss someone for asking for a raise?

Nita: This is a big risk. If the employee has two years’ service, they have the right to bring an unfair dismissal claim. And with the proposed legal changes on day one rights, soon every employee will have that protection from the start. Dismissing someone for raising a pay issue could be seen as disproportionate or punitive.

What should employers consider before making any pay decision?

Nita: There are several key factors to consider before making any decision about a pay rise. Start by benchmarking the role against industry standards to ensure your pay levels remain competitive. Consider the individual’s recent performance and their overall contribution to the business. Affordability is also crucial – it’s important to balance recognition with financial sustainability. Think about internal equity too, so that any decision doesn’t create resentment or a sense of unfairness among other employees. Finally, take into account the timing and tone of the request – whether it was raised constructively or came across as a demand can influence how it’s best handled.

What if the business genuinely can’t afford to give a raise?

Nita: Be honest – but sensitive. Explain the financial constraints and reassure the employee that their request has been heard and valued. You might also explore non-financial benefits or revisit the conversation later in the year.

Is it a good idea to set out a formal process for pay review requests?

Nita: Definitely. Having a clear process helps set expectations and makes the decision-making fair and transparent. It also reduces the chances of impulsive or emotional responses from either side.

What are some constructive ways to respond if you’re saying “no” to a pay rise?

Nita: Acknowledge the request, explain your reasoning (performance, budget, timing, etc.), and suggest a future review point. You can also offer support on development goals to help them progress toward a pay increase in the future.

Can a pay rise request be a sign of deeper issues?

Nita: Yes – sometimes it’s about feeling undervalued, overworked, or under-recognised. A pay request might be a way of expressing wider dissatisfaction, so it’s worth asking how the employee is feeling more generally about their role and workload.

Should pay discussions be treated confidentially?

Nita: Absolutely and without a doubt. Conversations about pay are personal and should never be shared with others in the business. Breaching that trust can cause major disruption.

How do employers avoid setting a precedent?

Nita: By being consistent. If you say yes to one person, you need to be clear on why – and how it fits into your overall pay strategy. That’s why having documented rationale and a pay framework is crucial.

Is there ever a right time to give a pay rise?

Nita: Ideally, during annual performance or pay reviews. But businesses can consider out-of-cycle increases if someone takes on new responsibilities, delivers exceptional performance, or there’s a retention risk.

How can employers prepare for more pay requests in today’s economic climate?

Nita: Proactively review your pay structures, stay in tune with market rates, and be ready to have honest conversations. Regular feedback, recognition, and check-ins can also prevent employees from reaching the point of frustration.

Final thoughts – what’s your one piece of advice for any employer getting a pay rise request?

Nita: Don’t ignore it, don’t panic, and don’t dismiss. Use it as an opportunity to open a dialogue, reflect on your pay strategy, and strengthen your relationship with the employee – regardless of the outcome.

Pay rise requests can feel uncomfortable, but they don’t have to be. With the right mindset and support, they can actually be a valuable part of retaining and motivating your team.

If you’re ever unsure how to respond – or you’re facing a situation like the one I mentioned earlier – don’t go it alone. Our HR experts are here to help you navigate the legal, practical, and human side of pay and performance.