Setting and reviewing pay

As any employer knows, pay is one of the most important factors in recruiting and retaining talented staff. But how should you go about setting it?

Whether you're establishing wages for a new role or reviewing them for a current employee, your aim is to set a rate that meets the following 3 criteria:

  • complying with legal requirements, such as national minimum wage and equal pay
  • attracting talented employees and motivating current staff
  • fitting in with your other business costs and ensuring value for money.

Here are some things to consider when determining the pay system that's right for your business.

Pay schemes

Employers can choose from 2 types of pay scheme, or operate a combination of both:


Employees are paid a set sum at an hourly, weekly, monthly or annual rate. Basic-rate schemes are simple to operate, but may not incentivise workers to be more productive.


Part or all of a worker's pay is based on performance, skills, results and/or profits. Incentive-based schemes can be based on individual or group performance and can be long or short-term.

Legal obligations

You will need to pay most workers at least the national minimum wage, the rate of which depends on their age and whether they're an apprentice.

Bands 2017/18 rates
25 and over £7.50
21 to 24-year-olds £7.05
18 to 20-year-olds £5.60
16 to 17-year-olds £4.05
Apprentice rate* £3.50

*For apprentices aged 16 to 18 or those aged 19 or over in their first year.

Gender pay gap reporting

Employers can't discriminate on the grounds of gender when setting pay.

Under legislation in force since 6 April 2017, private and voluntary-sector employers with 250 or more employees are required to publish information about the difference between men and women's pay and bonuses.


To ensure your wages are competitive, you can compare your rates against your competitors.

If your wages are too low when compared to the rest of your sector, the most talented jobseekers may choose to look elsewhere.

Remember to take into account factors that affect pay, such as:

  • regional differences
  • demand for the product or service
  • whether there is a shortage or surplus of workers with the right skills.

Perks and benefits

It doesn't all have to be about wages; other benefits could be included in addition to salary.

Common examples include pension contributions, flexible working and the ability to accrue leave.

Another option to reward your workers is to offer a bonus, which may incentivise staff more effectively than a pay rise.

Cash bonuses are treated as earnings, so income tax and class 1 national insurance contributions have to be deducted through payroll.

Agreeing pay with employees

However you decide to calculate pay, it's important to clearly communicate your process with employees.

Review pay in appraisals

Most businesses review individual pay annually, at the same time as a performance appraisal.

However, some companies are rethinking their appraisal system to involve more frequent meetings and conversations on performance. This can make it easier to link pay increases to performance.

Create a pay policy

Using pay to incentivise strong performance won't work if employees aren't aware of your reward system.

Establishing a policy will make it clear to staff when pay reviews take place, the criteria you use, and what the outcome could be.

Talk to us about setting and reviewing pay.