How To Handle A Pay Rise Letter To Your Employer

When an employee sends a pay rise letter, it can catch you at a busy moment. You want to be fair, keep good staff, and stay compliant - without blowing your budget.

The good news is there’s a simple, legally-sound way to assess requests and respond with confidence. With a clear process and the right documents, you can balance your business’ needs with your team’s expectations and reduce the risk of disputes.

In this guide, we’ll walk through how to triage a pay rise request, what the law expects of employers in Australia, and the paperwork to update if you say yes (or no).

What Is A Pay Rise Letter To An Employer?

A pay rise letter (or salary increase request) is a written proposal from an employee asking you to increase their remuneration. It might refer to market rates, new responsibilities, or performance outcomes. Sometimes it appears after an annual review; other times it’s prompted by cost-of-living pressures or a competing offer.

From an employer’s perspective, the letter is a trigger to check three things:

• Are we meeting all legal minimums (award, enterprise agreement, National Minimum Wage)?
• Does the request align with our pay structure, budget and internal equity?
• If we agree, how do we implement changes correctly and update our documents?

A methodical approach protects your business, supports fair decision-making and helps you communicate the outcome clearly.

Do You Have To Approve A Pay Rise Request?

Not necessarily. Australian employers are not legally required to grant a discretionary pay increase because an employee asks. However, you must ensure remuneration is compliant and that your decision-making is lawful.

Minimum Entitlements Still Apply

Start by confirming the employee’s current pay meets (or exceeds) any applicable modern award classification or enterprise agreement, including allowances and penalty rates. If they are award-free, you must at least meet the National Minimum Wage (and any contractual obligations). Paying above award wages is fine, but you can’t go below legal minimums.

General Protections And Discrimination

While you can decline a discretionary increase, be careful not to take adverse action for unlawful reasons (e.g. because an employee exercised a workplace right or due to protected attributes such as sex, race, disability, age). Ensure your decision is based on valid, defensible factors like role scope, performance, skills, internal relativities and budget.

Pay Secrecy Clauses Are Unlawful

Employees now have a right to discuss their pay. It’s important your contracts and policies do not include pay secrecy terms. If a request highlights perceived inequity, investigate it in good faith and correct any underpayments promptly.

Superannuation Obligations Continue

Any pay decision should account for superannuation. If you pay an “inclusive” salary, be clear whether salaries include superannuation, and confirm what constitutes Ordinary Time Earnings for super purposes.

A Step-By-Step Process To Assess A Pay Rise Letter

1) Acknowledge The Request And Set Expectations

Thank the employee, outline the assessment process and timeframe, and confirm any upcoming review meeting. A calm, predictable process builds trust and buys you time to run checks.

2) Confirm Legal Minimums And Classification

Check the relevant modern award or enterprise agreement and confirm the correct classification level. Use your payroll records and tools like the Fair Work pay calculator to sanity check current minimums and loadings. If there’s a gap, fix it immediately and consider back pay. It’s sensible to reference the pay calculator data in your internal notes.

3) Benchmark The Role, Not Just The Person

Look at the role’s responsibilities, skills, experience, and impact. Consider market data, internal relativities, and the cost to replace or upskill. Keep notes to show objective factors informed your decision.

4) Review Performance And Scope Changes

If the employee has taken on additional duties, led projects, or delivered measurable outcomes, decide whether a pay rise, a one-off bonus, or a title/grade change is more appropriate.

5) Decide The Remuneration Mix

Are you adjusting base salary, adding a discretionary bonus, or providing a non-cash benefit? If a bonus is in play, ensure your contracts and policies are clear about whether it’s discretionary or guaranteed, and whether super applies (see superannuation on bonuses).

6) Stress-Test Budget And Equity

Model the effect on payroll, super, and on-costs. Consider flow-on effects to peers in similar roles. A structured salary banding approach helps maintain fairness across your team.

7) Prepare Your Written Response

Whether the answer is yes, no, or “revisit later”, draft a respectful letter that sets out the outcome, reasons, and next steps. If you agree to an increase, include the new package, the effective date, and any conditions.

8) Update Contracts, Payroll And Records

Implement changes correctly and keep accurate records. If the variation is material, follow best practice for changing employment contracts and issue a variation letter for the employee to sign.

Pay, Awards, Bonuses And Super: What Should You Review?

Before you finalise your decision, work through these pay and compliance checkpoints.

Check The Right Instrument Applies

Confirm whether a modern award or enterprise agreement covers the role. If award-covered, ensure base rates, allowances, penalties and overtime are correctly applied. If award-free, check you still meet the National Minimum Wage and any contractual promises.

Salary Vs Wages

Understand the difference between salary vs wages in your context. Salaried arrangements are common for full-time professionals, while hourly wages may apply to operational roles where penalties and overtime are frequent. Your response should reflect the appropriate structure for the role.

Inclusive Salary And Set-Off Clauses

If you operate with an “all-in” salary model, ensure your contract has clear, enforceable set-off clauses that allow above-award payments to offset award entitlements. Even with set-off wording, you still need to regularly reconcile against the award to avoid underpayments.

Fixed Remuneration And Above-Award Payments

It’s common to offer fixed pay packages that sit above legal minimums. Paying above award wages can simplify payroll and help with retention - just be clear about what’s included (e.g. allowances) and what remains payable separately (e.g. expense reimbursements).

Bonuses: Discretionary Or Not?

If you use bonuses to recognise performance when you can’t move base salary, label them appropriately and document the criteria. Clarify whether super applies by reference to Ordinary Time Earnings and the rules for superannuation on bonuses. This avoids confusion and future disputes.

Does The Salary Include Super?

Be explicit about whether a package is “plus super” or “inclusive of super”. Many misunderstandings stem from assumptions here, so use clear wording consistent with your contracts and payroll setup. If needed, revisit whether your salaries include superannuation approach is still fit for purpose.

How To Respond And Update Contracts The Right Way

Your written response is an opportunity to show fairness and clarity. It also becomes a key record if questions arise later.

What To Include In A “Yes” Response

• New Package: State base pay (and whether it’s plus or inclusive of super), any allowances, bonuses, or non-cash benefits.
• Effective Date: Specify when the increase starts and whether any back pay applies.
• Conditions: If applicable, note any probationary or performance gateways for additional changes.
• Contract Variation: Attach a short variation letter for the employee to sign (or issue a refreshed Employment Contract if you are overhauling terms).

What To Include In A “No” Or “Not Yet” Response

• Clear Reasons: Focus on role scope, internal relativities, and business constraints (avoid personal or protected attributes).
• Forward Plan: Outline objective steps that could change the decision (e.g. agreed KPIs, training, role expansion, next review date).
• Supportive Tone: Recognise contributions and reinforce the review process is fair and ongoing.

Contract And Policy Updates

When pay changes, keep your documents in sync. Follow best practice for changing employment contracts, update payroll and HRIS, and ensure letters match your contract templates and policies. Where you adopt “all-in” salaries or new incentives, check your set-off wording and bonus clauses align with how you now pay.

Record-Keeping And Payroll

Maintain written records of the request, your assessment notes, and the final outcome. Update payslips, super contributions and tax settings in time for the next pay cycle. If you operate salary bands, record the band movement and rationale to help with internal equity reviews.

Common Pitfalls To Avoid

• Granting increases without checking award compliance across the team.
• Promising “inclusive” arrangements that don’t reconcile against award entitlements.
• Confusing staff by not clarifying whether the figure is plus or inclusive of super.
• Using unclear bonus language (e.g. implying guarantees where you intend discretion).
• Leaving contracts and payroll out of sync with what’s been agreed.

Key Takeaways

• You don’t have to approve every pay rise letter, but you do need a fair, consistent process grounded in legal compliance and objective criteria.
• Start by confirming award or agreement minimums, correct classification and any gaps; fix underpayments quickly if they arise.
• Decide whether to adjust base pay, use a discretionary bonus, or change scope/title - then check the impact on super, OTE and on-costs.
• Be explicit about salary structure (plus vs inclusive of super), and ensure your contracts have appropriate set-off clauses if you pay above award.
• Communicate the outcome in writing and implement changes properly with a contract variation or updated Employment Contract, then align payroll and records.
• If you say no or not yet, explain lawful reasons, set a forward plan, and schedule the next review to maintain trust and morale.

If you’d like a consultation on handling pay rise letters and updating your employment contracts and pay structures, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.