Running a pay review in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
A pay review is a structured process for assessing and adjusting employee salaries, typically carried out once a year. Done well, it keeps pay competitive, supports retention and gives you a defensible paper trail if decisions are ever questioned.
Decide when and how often to review
Most UK employers run an annual pay review, often timed to coincide with the start of the tax year (April), the financial year, or a fixed anniversary date. There is no legal requirement to review pay at any particular frequency, but consistency matters: if employees expect a review and it does not happen, trust erodes quickly.
Some organisations run a separate cycle for performance-related pay and a different one for cost-of-living adjustments. Keeping the two distinct avoids the awkward conflation of "you performed well but we are giving everyone nothing" — or the reverse.
Set your budget and benchmarks before any conversations start
Before you open a single conversation with an employee, establish what you can actually spend. A common approach is to set a central pay-review pot — expressed as a percentage of total payroll — and then allocate from it based on performance, market position and retention risk.
Benchmarking is where many smaller employers cut corners and regret it. Useful sources include:
- Salary surveys from industry bodies or specialist recruiters
- ONS Annual Survey of Hours and Earnings (ASHE), which is free and covers median pay by occupation and region
- Job adverts for comparable roles in your market
Bear in mind that London and the South East carry significant pay premiums over most other regions. A developer salary that looks generous in Leeds may be below market in London.
Factor in statutory obligations
Pay reviews are not purely a discretionary exercise. Several statutory floors affect what you can and cannot do.
National Living Wage and National Minimum Wage rates are updated by the government, typically each April. Any review must confirm that every worker — including part-time and variable-hours staff — remains at or above the applicable rate after any change (or non-change) to pay.
Equal pay obligations under the Equality Act 2010 require that men and women doing equal work receive equal pay. A pay review is a good moment to run a basic equal pay audit. If you identify unexplained gaps, address them proactively rather than waiting for a claim.
Auto-enrolment pension contributions are based on qualifying earnings. If salaries increase, employer contributions (minimum 3%) and employee contributions (minimum 5%) will rise in cash terms accordingly — worth modelling into your budget.
The Employment Rights Act 2025 has strengthened a range of day-one rights. While it does not directly prescribe pay-review processes, the broader direction of travel is toward greater transparency and accountability in employment practices, so documenting your methodology now is prudent.
Structure the review process fairly
A credible process has a few non-negotiable elements.
Criteria should be set in advance. If performance is a factor, employees need to know what good performance looks like before the review period, not after. Retrospectively deciding criteria is both unfair and legally risky.
Line managers should not act alone. A calibration step — where managers discuss proposed increases with HR or senior leadership — catches outliers, whether that is unjustified generosity toward favoured employees or unjustified suppression of increases for others.
Document everything. Record the rationale for each decision, especially where an increase is below the average or zero. "Budget constraints" is a reason; it should still be written down alongside the individual's performance assessment.
Communicate clearly. Tell employees the outcome, the effective date and — at least in general terms — how decisions were made. You do not need to share what colleagues earn, but opacity breeds suspicion.
Update payroll accurately and on time
Once decisions are finalised, payroll needs to be updated before the effective date of the new salary. Under Real Time Information (RTI) rules, you must report accurate pay figures to HMRC via a Full Payment Submission on or before each payday. Errors in the pay-review implementation — wrong effective dates, old salary figures left in the system — will create discrepancies that are time-consuming to correct and can leave employees under or overpaid.
If you are running payroll in-house, build a reconciliation step into your process: compare the new payroll run against the previous one and sense-check the variance against your approved increase list. If increases apply from a mid-month date, you will need to pro-rate correctly. Understanding how Mellow runs payroll across six countries can give useful context if you are managing a multi-jurisdiction workforce alongside a UK review.
Keep a record for next time
A pay review that is well documented becomes the foundation for the next one. Store the benchmark data you used, the budget allocation, the calibration notes and the final outcome by employee. When you return to the exercise in twelve months, you will have a baseline — and if you face a pay dispute or an equal pay query in the meantime, you will have evidence of a structured, considered process rather than ad hoc decisions.
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