How to Navigate Employee Raises

What do you do when an employee asks you for a raise? As a childcare business owner, you may have found yourself caught off-guard by an employee who brings up the topic of a raise. In the following article, we share practical tips to help you successfully navigate employee raises so you can effectively manage your childcare business team—and your business budget.

What to Do When Your Employee Asks for a Raise

It’s been a long day of childcare and the last of the pick-ups have gone home. You’re doing a final clean-sweep before you shut off the lights and lock the doors to head home. When you stop by the infant room, one of your trusted daycare teachers asks if she could chat with you for a minute. Before you can get a full grasp on the conversation, you realize she is asking you for a raise and you find yourself unsure of what to say or do. Before you hit the panic button, try the following tips to handle the topic professionally and effectively:

• No matter what your immediate response is to your employee’s request for a raise, try to keep your body language and tone of voice neutral and open. Communicate that you are listening and value your employee’s concerns, whether or not you agree with their proposal.
• Refrain from giving an immediate answer, negative or affirmative. Instead, respond with something like this: “Thank you for sharing this information with me. I will need to take some time to do some research and consider whether I can accommodate your request. I would like to plan a time to follow up together in two weeks.” By holding off on an immediate response (even if you already know the answer), you will mitigate the “deer in the headlights” reaction that business owners often feel when an employee catches them off-guard with the topic of a raise.
• Acknowledge your employee’s position, too. Often business owners may feel annoyed or awkward when employees bring up the topic of a raise when they are least expecting it. But the truth is, the money conversation is just as difficult to navigate for employees as it is for employers. Chances are that your employee deliberated whether and how to bring up the topic of a raise and probably feels just as uncomfortable about it as you do. Regardless of whether you agree or disagree with your employee’s request, telling them you that you appreciate their openness in bringing their concerns to your attention builds trust.

Once you navigate the initial conversation with your employee, you can take some time to consider whether his or her request for a raise is something you can or should accommodate.

Let’s look at some practical ways you can decide whether to grant your employee’s raise request.

Factors You Should Consider Before You Grant an Employee Raise Request

Take some time to consider the following factors in light of your employee’s raise request:

• Cost of Living – Employers offer regular raises, often annually, to accommodate the increasing cost of living for their employees. The Social Security Administration sets forth a cost-of-living adjustment every year to respond to economic changes. The 2021 cost-of-living adjustment is 1.3%. Have your employees received a raise to accommodate this year’s cost-of-living adjustment?
• Length of Employment – Employers will look at the length of time the employee has been serving the company as they consider whether to offer a raise and how much to offer. Long-term employees who add value to your business should be recognized for their years of dedicated work. How long has the employee requesting a raise been in your employment?
• Performance – Of course a major consideration for any employee requesting a raise is their performance on the job. You will want to look at the big picture here. Has the employee shown consistent, superior performance over time? Has the employee taken on additional work responsibilities or increased his or her skills and experience? An employee who goes above and beyond or has contributed significant input deserves to be compensated for the value they bring to your company.
• Employee Retention – You already know all about the high employee turnover rate in the childcare industry. One of the ways you can offset high employee turnover at your childcare business is by offering competitive wages and regular raises to keep your best employees motivated and encourage them to stay. If you’re afraid of losing the employee who is asking for a raise, that should carry weight in your decision-making process.
• Market Value – When an employee asks for a raise, you can research the market value of their job position to determine what other employees with a similar title, skills, and experience earn in your area. Is the employee at or below the market value for their position? Is there room for adjustment?
• Pay Structure – Along with market value, you will want to consider your team’s pay structure as a whole. It can be demoralizing for employees who have been with your company for a long time to see new employees with less experience being brought onboard at a similar (or higher) pay rate. Does the employee’s raise request make sense in light of the overall pay structure of your childcare business?
• Your Business Budget – Employers must also consider whether there is room in their business budget to accommodate the employee’s raise request. Does your budget offer the ability to grant your employee’s raise request, or a raise of any amount at all? Whether or not your employee deserves a raise is one matter, but whether you can afford to offer one is another.

Factors You Should Not Consider Before You Grant an Employee Raise Request

There are also factors that should not come into play when you consider whether to grant an employee a raise. Here are a few items to leave off the table:

• Employee’s Personal Circumstances – It may be difficult to hear about your employee’s hardships, extenuating circumstances, and need for more money, and certainly as a caring employer you want to make it known that you will offer what support you can during your employee’s challenging times. However, when considering whether to give your employee a wage, you really need to remove personal circumstances from the decision-making process. Giving a raise is strictly a business decision, and as such, should be viewed in terms of how much value the employee adds to your business. Your employee may need extra cash for a new roof, but that shouldn’t drive the decisions you make for your childcare business.
• Your Own Personal Feelings – It’s easy to let your emotions steer the decision-making process when you’re dealing with an uncomfortable situation like employee raise requests. However, careful research and consideration of the all the facts will lead to a better outcome than letting your feelings about the raise request influence your “yes” or “no” answer. Even if the answer is ultimately “no,” your employee deserves to know why not, and you need to be able to articulate your reasoning with the appropriate evidence.

When the Answer Is Yes

If you have decided to grant your employee’s request for a raise, you can share the good news with them in a follow-up conversation. Decide how much of a raise you will offer and whether the raise will reflect a percentage of the employee’s salary or a fixed amount. Take the opportunity to communicate your appreciation of the employee’s hard work and express your hopes that he or she will continue to play an integral role at your daycare company long into the future. Discuss opportunities for growth and come up with new goals for the position, if appropriate.

When the Answer is No

You may decide that your employee’s raise request should not or cannot be granted, and that’s okay too. The follow-up conversation will naturally be more difficult when you have to say no, but it is equally necessary. Provide as much helpful feedback as possible to let the employee know why you will not or cannot offer the raise at this time. Here are a few responses you might give:

• “I have reviewed your request for a raise and after further research I have found your salary to be appropriate for your position.”
• “You are not eligible for a raise at this time, but let’s work on the following goals and revisit this conversation in six months.”
• “I would love to be able to offer you a raise, but I simply cannot accommodate your request in our business budget at this time.”

As you can see, there are many ways to approach the conversation, but the important thing to remember is that your employee will need to hear the reasoning behind your “no”. You don’t need to justify your decision to them, but you should offer them insight into the factors that went into your decision-making process.

Also, if the answer is “no,” consider whether an alternative offer is available. If you can’t offer a salary raise, could you offer a one-time bonus for completing a special assignment, additional vacation days, or other perks? This may or may not work for your childcare business, but it’s something to consider in a situation where you want to reward your employee but can’t offer a raise.

We hope this guide to employee raises will help you navigate this topic with your own childcare business team.

Honest Buck Accounting is here to help you maximize your childcare business budget, streamline your financial processes, and grow your business. Schedule a call with our team of professional accountants to learn how we can free up the financial side of your business to help you get back to what you love most about it.