Running a pay review in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
A pay review is a structured process where you assess whether employees' current pay is appropriate, then decide whether and how much to adjust it. Done properly, it protects retention, keeps you compliant with minimum wage obligations, and gives employees a predictable, fair experience.
What triggers a pay review
Most businesses run pay reviews on a fixed cycle — annually is the most common cadence. Common triggers include:
- The annual anniversary of a hire date or a shared review date for the whole team
- A Fair Work minimum wage or modern award rate increase (these typically take effect on 1 July each year)
- A role change, promotion, or significant expansion of responsibilities
- A market-rate shift that makes your current pay uncompetitive
- A retention issue or a counter-offer situation
Separating these triggers matters. A cost-of-living adjustment is a different decision from a merit increase, and conflating them causes confusion for managers and employees alike.
Gathering the right data before you decide
Good pay decisions start with good data. Before you sit down to decide numbers, collect:
Internal data. Your current pay rates by role, level, and tenure. Any pay equity gaps by gender or other characteristics — the Workplace Gender Equality Agency requires larger employers to report on this, but it is worth running the analysis regardless of your size.
Market data. Salary surveys from SEEK, LinkedIn Talent Insights, industry associations, or a remuneration benchmarking provider give you a sense of what comparable roles are paying in your sector and location. Aim for at least two independent sources.
Award and enterprise agreement floors. If your employees are covered by a modern award or enterprise agreement, you cannot pay below the applicable rate for their classification. Award rates are updated by the Fair Work Commission each July. Check the current rate for every relevant award classification before finalising any outcome — paying below the minimum is a breach regardless of what a contract says.
Budget. Know your total compensation envelope before you make any commitments. It is easier to have honest conversations with managers when there is a clear budget to work within.
Setting the review criteria
The most defensible pay reviews are built on documented criteria decided before you start assessing individuals. Common criteria include:
- Performance rating — if you have a formal review process, link the pay outcome to the rating tier
- Position in pay band — someone at the bottom of a band may receive a larger increase than someone already at the top
- Market movement — where market data shows your rate has fallen behind, an adjustment may be warranted regardless of performance
- Tenure and progression — relevant in technical or specialist roles where experience directly drives output
Whatever criteria you use, document them and apply them consistently. Inconsistency creates unfairness and, if the pattern correlates with a protected attribute under the Fair Work Act or anti-discrimination law, legal exposure.
Working through the mechanics
Once criteria are set, the process is straightforward:
1. Managers assess each employee against the criteria and propose an outcome within their allocated budget.
2. HR or the business owner checks proposals for consistency and compliance — no outcome should sit below the applicable award or agreement minimum.
3. Decisions are approved, documented, and communicated to employees with a clear effective date.
4. Payroll is updated. In Australia, payroll reporting happens through Single Touch Payroll (STP), which reports pay events to the ATO in real time. Any change to a rate takes effect from the next pay run after the effective date; there is no separate annual lodgement for rate changes.
Keep in mind that if you are increasing a base salary, the Superannuation Guarantee — currently 12% of ordinary time earnings — will increase in dollar terms accordingly. Build that into your budget modelling. Employees who have a HECS/HELP debt repaid through payroll may also see their repayment band change if the increase pushes their income into a higher threshold.
Communicating outcomes clearly
How you communicate a pay review outcome matters almost as much as the outcome itself. A few practical guidelines:
- Tell employees the outcome before the payslip arrives, not after.
- Explain the rationale briefly — "your role is now at band level and market data shows the rate has moved" is more credible than "the business recognises your contribution."
- If someone receives no increase, say so directly and explain why. Vague responses erode trust faster than a straight answer.
- Where an employee is below the market median and the business cannot close the gap immediately, be honest about the timeline and what would need to change.
Documenting the conversation — even a short email summary — protects both parties and creates a useful record for the next review cycle.
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