Everyday pay management is complex.
Companies must confront an ongoing cost-of-living crisis, competitive pay packages within the marketplace, and – for multinational corporations – difficulty maintaining fair and ethical pay across different countries.
In the UK, 30% of businesses are struggling to keep up with salary demands – that’s according to a recent hiring survey of 1,000 adults carried out by Adobe Express.
The most significant pay management challenges facing UK businesses are relatively easy to rectify, once you know where to start.
How UK businesses can overcome pay management challenges
- Create clear pay review processes
Without clear and documented pay review processes, businesses often end up handling ad hoc staff requests with no clear guidance on whether they should award an employee with a pay increase.
The result? Widespread inconsistency and unfairness across the business – especially for those who don’t feel confident or comfortable enough to ask for a pay rise.
When preparing a clear pay review process and deciding when a pay increase should be awarded, a business can look at offering either performance-related increases or general cost-of-living rises.
Performance?related pay increases
Performance?based increases (salary raises awarded based on an individual’s performance and achievements) drive accountability, retention, and motivation by rewarding excellence for high performers within the business.
However, they require clear communication, strong leadership capability, and robust processes to ensure they’re delivered consistently and fairly.
Failure to do so can lead to over-emphasis on individual performance, which could discourage teamwork.
This structure is most common for private sector companies – especially those operating within tech or sales market-places – that use complex performance rating systems and pay matrices to support their decisions.
Standard cost-of-living increase for all staff
Alternatively, businesses could award pay rises across the board using standard percentage increases in line with the cost-of-living.
This type of compensation is simple, predictable, easy for administrative teams, and often perceived as fairer.
Equally, however, this less strategic approach runs the risk of demotivating high performers and weakening performance culture as there’s no differentiation top contributors, potentially fostering feelings of disengagement in these individuals.
Standard cost-of-living increases are often implemented by large companies and accredited Living Wage employers, particularly those operating in the retail and public sector.
Unsure where to start? Salary benchmarking (in relation to the role, industry, and location) is always a useful exercise that can help you to determine whether pay is on the right level.
- Communicate pay processes with staff
Once you’ve settled on the most suitable pay review process for your business – whether performance-related or standard per cent increase – this needs to be clearly communicated to support transparency, understanding, and awareness.
This is particularly important for small businesses where finances may be tight.
Strong communication can outline that pay increases may be dependent on business profits and therefore not guaranteed, helping to manage employee expectations and prevent unrest.
- Understand the regulatory requirements
Per the Employment Rights Act 2025 (ERA) and updated regulations introduced from April 2026, there is now a Fair Work Agency that has been set up to ensure fair processes are followed and accurate records are kept by employers.
Failure to follow these processes can also result in fines and reputational risk.
To ensure pay is being reviewed correctly and compliantly, UK businesses must:
- Increase to National Minimum Wage (NMW) and National Living Wage (NLW)
Pay for employees must be increased annually in line with legislation changes.
- Carry out gender, ethnicity and disability pay gap reporting
Particularly important for larger businesses, gender, ethnicity and disability pay gap reporting must be done when a company has more than 250 employees.
- Ensure correct holiday pay and records
All employers must provide evidence that they are complying with working time regulations and maintaining complete, accurate, and accessible records of annual leave and pay for at least six years.
Where to start
Having everyday pay management issues within your business?
Start with these basic steps:
- As a minimum – keep on top of statutory requirements
- Agree a strategy for the business (either performance related or standard per cent increase)
- Whichever process is chosen, ensure there is a clear and documented process
- Be transparent with staff and communicate
Case study: Inconsistent pay increases and staff unrest
At Peach Law, we recently supported a client with their everyday pay management processes.
The challenge
With no clear pay review process in place, they were receiving ad-hoc pay increase requests, with some being agreed and others declined with no real rationale supporting these decisions.
While pay is meant to be kept private, colleagues were discussing their pay, generating some unrest.
Were the situation left to deteriorate, this could lead to a decline in morale, increased stress, a higher turnover of staff, reduced productivity, and an influx of complaints.
The solution
We discussed the most suitable approach for the business, with the client choosing an annual review to analyse overall business performance and determine if a standard percentage increase was viable.
We also looked at the national average for cost-of-living increases and the pay levels for the industry and location, confirming that their existing staff salaries were on par with the industry norm.
Next, we looked at communication. The team was informed that no further ad-hoc pay increase requests would be considered, and that any future changes would only follow the annual review or statutory updates.
After reviewing the financial year, the business was unable to offer a percentage pay increase, so alternative benefit options were explored instead.
As staff previously had to use three days of their annual leave entitlement for when the business closed down between Christmas and the new year, the business decided to return those three days to employees.
A communication was then sent to staff explaining why a pay increase couldn’t be sanctioned this year, but highlighting the additional leave entitlement.
The result
While the business couldn’t offer a per cent pay increase this year, it could offer employees an additional three days of annual leave, which was well-received.
Employees now also have a clearer understanding of when the pay review process will take place and how it works, offering them transparency and helping to prevent unrest.
Improve processes, communication and compliance with Peach Law
Need a helping hand ensuring your everyday pay processes are fairly implemented, fully compliant with the latest UK legislation, and clearly communicated with your employees?
At Peach Law, we offer an extensive range of relevant HR services, including performance management support, financial wellbeing advice, and recruitment induction and onboarding assistance.
Eager to find out more about HR services or discover how we can help your business specifically? Simply contact the helpful team at Peach Law today.
We welcome all enquiries made:
Online: Fill in our contact form
By phone: 0161 478 3800
By email: joanne.wilson@peachlaw.co.uk
