How to Write a Salary Increase Letter to an Employee in Australia

Giving a pay rise is one of the clearest ways to recognise good work and retain great people. But as an employer in Australia, it’s important to get the process right - both legally and practically.

A clear, well-structured salary increase letter to your employee sets the tone, avoids confusion about what’s changing and when, and makes sure your payroll and contract records stay compliant.

In this guide, we’ll walk you through when to offer a pay rise, what to include in your letter, how to structure the increase (including superannuation and bonuses), and the key legal checks to make before you hit “send”. We’ve also included a practical template you can adapt to your business.

When Should You Offer A Pay Rise?

There’s no single rule for when to increase pay. Most small businesses consider a few triggers:

• Performance and contribution: Exceeding KPIs, taking on higher duties, or consistently delivering strong results.
• Role or responsibility changes: A promotion, acting in a higher role, or expanded scope.
• Market adjustments: Keeping pace with skill shortages or industry benchmarks so you stay competitive.
• Award or minimum wage updates: Ensuring remuneration remains compliant after Fair Work Commission annual wage reviews.
• Retention: Proactively recognising value to reduce turnover risk.

Before deciding, check the relevant modern award or enterprise agreement for minimum rates, classification levels, allowances and loadings. If you’re paying above minimums, a documented rationale - and a clear letter - will help you maintain consistency across your team.

If you’re not sure about your baseline obligations, consider an Award Compliance review so your increase genuinely sits “above board”.

What Should A Salary Increase Letter Include?

Your salary increase letter should answer every question the employee might reasonably have. At a minimum, cover:

• The new remuneration: Total annual salary (exclusive of superannuation) or hourly rate. If applicable, state allowances or loadings.
• Superannuation treatment: Clarify whether the figure is exclusive or inclusive of super, and confirm super will be paid in accordance with the Superannuation Guarantee (SG) on Ordinary Time Earnings (OTE).
• Effective date: The date the increase starts (and the first pay cycle it will appear in).
• Basis for increase: A short, positive explanation (e.g., sustained high performance, promotion, market review).
• Bonuses or incentives: Describe any discretionary bonus or commission framework separately to fixed remuneration, so expectations are clear.
• Award classification: Where relevant, confirm the employee’s classification under the applicable award.
• Contract variation: Note that the letter varies/remains consistent with the existing Employment Contract and how it will be documented (e.g., by countersigning the letter).
• Confidentiality and transparency: Avoid any pay secrecy clauses. Employees have a workplace right to discuss pay in Australia.

It’s also good practice to thank the employee, recognise their contribution, and invite them to raise any questions. Clear and respectful communication supports engagement and trust.

Legal Considerations In Australia

Pay rises are positive - but they still need to align with Australian employment law. Before you issue your letter, run through these essentials.

1) Minimum Rates, Awards And NES

Confirm the employee’s correct award classification and ensure the new rate meets (or exceeds) minimums, penalties, loadings and allowances required by the applicable modern award and the National Employment Standards (NES). If you rely on an “annualised salary” to offset entitlements, make sure record-keeping and reconciliation obligations are met.

2) Above-Award Wages

If you’re paying higher than the minimum, that’s fine - just make sure you label components correctly and maintain documentation. This helps you demonstrate compliance if audited and manage expectations internally. For context on how to position higher salaries, see Above Award Wages.

3) Superannuation On OTE (And On Bonuses)

Superannuation must be paid at least at the SG rate on an employee’s Ordinary Time Earnings. Check whether any new components fall within OTE and update payroll settings accordingly. Our guides on Ordinary Time Earnings (OTE) and Superannuation On Bonuses will help you determine what’s in or out.

4) Discretionary vs Non‑Discretionary Payments

Be clear about which elements are guaranteed and which are discretionary. If a “bonus” is effectively guaranteed (e.g., tied automatically to agreed metrics), it may be treated differently to a truly discretionary payment. Clarity in your letter helps avoid disputes - this distinction is explored in Discretionary vs Non-Discretionary Payments.

5) Pay Transparency

Pay secrecy clauses are now unlawful in Australia, and employees have a right to discuss their remuneration. Avoid language that restricts pay discussions. Focus instead on your internal processes and fairness principles.

6) Update The Contract Or Issue A Variation

Changes to fixed remuneration should be reflected in your documentation. If the employee’s core terms aren’t changing, you can often use a short letter of variation. If their role or responsibilities are shifting significantly, a refreshed Employment Contract may be more appropriate.

How To Calculate And Structure The Increase

Decide how you’ll structure the increase before you draft the letter, so the numbers are consistent across payroll and contracts.

Choose The Right Remuneration Model

• Fixed salary (exclusive of super): The most common format for full-time and part-time employees. State base salary, then confirm super is paid in addition.
• Hourly rate: Common for award-covered roles with overtime/penalty rates calculated under the award.
• Mixed structure: Base salary plus commission or bonus. Detail the variable component separately to avoid confusion.

Confirm Superannuation Treatment

In Australia, salaries are often quoted “plus super”. To avoid confusion, spell out the base, the super rate, and how super applies to any variable components. Payroll systems should calculate SG on OTE automatically once set up correctly.

Decide On Timing And Backpay (If Any)

Most employers set an effective date from the start of a pay period. If you’re backdating an increase (e.g., following an annual review), confirm the backpay amount and when it will be processed.

Consider Fixed vs Variable Remuneration Settings

If you’re changing incentive structures at the same time, make sure your letter distinguishes fixed remuneration from variable pay. For a helpful primer on packaging pay, see Fixed Remuneration.

Step‑By‑Step: Drafting And Sending The Letter

Step 1: Confirm Compliance And Budgets

Cross-check award requirements, SG obligations, and payroll settings. Ensure funding aligns with your budget and any internal remuneration policies. If you use a handbook or policy to guide reviews, keep the decision consistent with your Workplace Policy.

Step 2: Decide The Structure And Effective Date

Lock in whether the increase is base-only or includes changes to allowances, bonuses or commission. Choose the exact effective date and any backpay amount.

Step 3: Draft The Letter

Use the template below as a starting point. Adapt it to your business tone and structure, and ensure the figures match payroll settings.

Step 4: Issue The Letter For Acceptance

Send the letter and ask the employee to countersign to acknowledge and accept the change (especially if the letter varies their contract). A quick 1:1 conversation first is respectful and reduces surprises.

Step 5: Update Your Records

Once accepted, update payroll, HR files, award classification records, and your remuneration register. If the change is substantive, store the signed letter alongside the Employment Contract as a formal variation.

Salary Increase Letter Template (Australia)

Subject: Salary Increase - , 

Hi ,

We’re pleased to confirm a salary increase in recognition of your contribution and performance in the role of .

New Remuneration
• Base Salary: $ per annum, exclusive of superannuation
• Superannuation: Paid at the Superannuation Guarantee rate on Ordinary Time Earnings
• Total Package (if you disclose): $ (base) + superannuation

Effective Date
The increase takes effect from  and will appear in the pay cycle commencing .
 totalling $ will be processed on .]

Award Classification (if applicable)
Your position is classified under the  as . Your base rate exceeds the applicable minimum rate for this classification.

Bonuses/Incentives (if applicable)
Any bonus arrangements remain discretionary and subject to the terms of your existing incentive plan. This letter does not guarantee a bonus payment.

Other Terms Unchanged
All other terms and conditions of your employment remain the same. This letter forms a variation to your employment terms regarding remuneration only.

Please sign and return a copy of this letter by  to confirm your acceptance.

Thank you for your ongoing contribution to . If you have any questions, please let us know.

Yours sincerely,

Acknowledged and Agreed:

Signed: ___________________________  Date: ________________
Name:   

Implementing The Change: Contracts, Payroll And Communication

After acceptance, make sure the operational side is watertight:

• Contract file: Store the signed letter with the employee’s contract as a formal variation.
• Payroll settings: Update the base rate, SG settings and any allowances so the next payslip reflects the change accurately.
• Position description: If duties have changed, refresh the PD and file it with the employee’s records.
• Policy alignment: Keep decisions consistent with your Workplace Policy and remuneration framework so you can apply increases fairly across the team.
• Communication: A short 1:1 conversation reinforces recognition. Keep it positive and clear about what’s next.

If the increase reflects a promotion or structural change (e.g., new KPIs, different hours), a new or updated Employment Contract may be appropriate rather than a simple letter of variation.

Common Mistakes To Avoid

• Quoting “including super” without clarity: Always state whether figures are exclusive or inclusive of superannuation and how super applies to variable pay. Align this with OTE rules.
• Skipping the award check: Even if you pay above award, confirm the employee’s classification and minimums. An Award Compliance check reduces risk.
• Blurring fixed and variable pay: Don’t bundle a “bonus” into base pay language. Keep discretionary incentives clearly separate and subject to plan terms - see discretionary vs non‑discretionary.
• Not updating payroll settings: If the payslip doesn’t match the letter, you risk underpayments and loss of trust.
• Using pay secrecy language: Avoid any wording that restricts employees from talking about pay.
• No signed acknowledgement: Always ask the employee to sign the letter, especially if it varies contract terms.

Key Takeaways

• A strong salary increase letter clearly sets out the new base rate, superannuation treatment, effective date, and whether bonuses are discretionary.
• Check the correct award classification and ensure your new rate exceeds minimums; document your rationale and keep records updated.
• Confirm how superannuation applies to the increase and any incentives by referencing OTE; configure payroll to match your letter.
• Keep fixed remuneration separate from bonuses or commissions and avoid any pay secrecy language in your documentation.
• Formalise the change with a signed letter of variation or an updated Employment Contract where responsibilities shift.
• Consider broader frameworks - such as above‑award pay, fixed vs variable remuneration, and super on bonuses - to keep your approach consistent and compliant.

If you’d like a consultation on drafting a salary increase letter or updating your employment contracts, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.