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Q: Is it lawful to not give a pay rise to employees? A: Generally, unless there is a contractual entitlement to a pay rise, you are not legally obligated to give one. It is important to bear in mind if there are any verbal agreements to this effect, any clauses in the employee’s contract of employment or whether there is some other binding agreement (for example, with a trade union), which may mean you are obligated to give a pay rise. Some employers often stipulate in the staff handbook that there will be an annual salary review for employees, but of course this is not the same as a pay rise! It simply means that the employer will look at the financial circumstances to see if a pay rise could be given. It is quite rare for an employer to have a contractual obligation to a pay rise unless bound by other circumstances, for example a trade union collective agreement or a pay award that had been made previously, for example set over a two or three year period. Other factors to be considered are equal pay issues that may need to be addressed, for example between men and women who do the same or broadly similar work, and whether there are any other discriminatory issues to do with your pay scales as they stand and market forces. You should also think about any staff retention issues that may arise if your employees feel underpaid, and therefore undervalued.

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