Should I Give My Employees a Salary Increase This Year?
As a business owner, you could be torn between rewarding the loyal employees in your organization and controlling growing costs. In a world of uncertain economic conditions, the decision of whether to offer pay increases is like walking a tightrope.
If you’ve been asking yourself, “Should I give my staff a raise this year?”, this article will be for you. The following steps will help you by breaking down the difficulty with practical steps and financial clarity, in a Malaysian and Singaporean context.
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1. Check Your Business’s Financial Health
Before making any salary changes, it is important to ask yourself: “Can I afford this change?” Things to consider when answering the question:
Cash Flow: Will you have enough cash in hand to see you through the next 3 to 6 months?
Profit Margins: Do you have enough funds for the increased expenditure?
Revenue Growth: Are your top lines growing or stagnant?
Moreover, you shouldn’t forget the statutory costs too. For example, in Singapore, employers must contribute 17% of the employee’s salary to CPF for staff aged 55 and below. While in Malaysia, the EPF contribution is typically 13% of salary (12% if the employee earns more than RM5,000 per month). It may not sound like a lot, but even a small salary raise can add up to a big increase in the total employment cost.
Read More: 7 Salary Deductions in Singapore Every Employer Must Know
2. Consider Your Market and Your Team
Benchmark Salaries
You may use websites such as JobStreet, Glassdoor, or Hays to determine the salaries in a local industry for different positions. You can also talk to your peers in your business network to ask about how much they pay their own employees in such positions. If you’re underpaying your employees relative to the market rates, you may struggle to retain your top employees.
Assess Performance and Retention Risks
Salaries are essentially the compensation you pay to your employees for the value of the work that they provide you. Ask yourself:
Has this employee consistently delivered value?
Consider whether their salaries justify their performance on the job and the value they produce.
Would replacing them be more expensive?
If an employee’s performance does not justify their pay, would it be better to replace them? Similarly, if an employee wishes to resign, would it be better to give them a raise to convince them to stay, or let them go? Sometimes, a small raise now can avoid a bigger recruitment and training costs later.
Have they hinted at job dissatisfaction?
Having an employee being dissatisfied about their position could mean that they are thinking of leaving your company, unless it is addressed early enough, it will be irreversible.
3. Consider Strategic Raise Structures
A raise doesn’t have to mean a flat percentage increase either. You can consider raise structures such as performance-based increments, where the better an employee performs, the higher their salary raises, rewarding and motivating them for their effort. You can also try split raises, meaning giving the employee 50% of how much you plan to raise their salary now, and the other 50% some time later. Giving benefits or allowances to your employees is also a good alternative, it includes providing hybrid workdays, transport allowance, paid time-offs, learning budget, etc. This keeps your cost flexible while still recognising the contributions of your employee.
Advice From an Accountant’s Perspective
“As an accountant, I always remind business owners that a salary raise is not a one-off event, but a recurring expense that compounds over time. Model out to see the long-term effects the salary increase has on your budget over 12–24 months. Factor in statutory contributions like CPF or EPF, depending on your region, and bonuses too if they’re expected. However, don’t overcommit to keeping your employees on board, if things don’t go your way, it’s very difficult to roll back a raise afterall. Clearly document why the raise is given and how the employee’s performance justify that raise. Remember to protect your salary too, don’t give others a raise if you’re not even making a stable income as the founder.”
Final Thoughts
Be kind, be fair, but be financially clear.
Raising salaries is a strategic decision that requires deep consideration. When done right, it incentivizes, retains, and builds employee loyalty. But when done too early or too generously, it can strain your finances. If you’re still unsure, sit down with your accountant or advisor. Sometimes, just having clarity around your numbers gives you the confidence to make the right call.
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