Introduction to this document

Salary review letter

Most contracts of employment don’t give employees an express contractual right to a pay increase each year but many do contain a discretionary provision for salary to be reviewed annually, or you may do this anyway even though the contract is silent. Use our salary review letter to advise your staff of the outcome of your pay review. You can also use it to award a one-off pay increase.

No change

Firstly, a discretionary or contractual pay review does not necessarily mean a pay increase, unless the contract expressly states this. The courts won’t normally imply into the contract the right to an annual pay increase. You might decide not to award any increase after your review for a variety of reasons, whether related to employee or company performance. This is perfectly acceptable provided you exercise your discretion fairly and not in bad faith, irrationally or arbitrarily and you don’t act in breach of the implied term of mutual trust and confidence. You will therefore need to be able to justify your decision. Our Salary Review Letter covers the option of letting your employee know that you have reviewed their salary but there will be no change. If you want to add in the reasons why salary is not being increased, you can do so, for example, because the employee is still subject to a disciplinary warning or because you have had a poor trading year.

Up or down?

Most pay reviews will, however, result in an increase, whether this be a simple cost of living increase or some other amount. In this case, use our letter to advise your employee of their new rate of pay and the date on which it will take effect. You need to issue this in any event to comply with section 1 of the Employment Rights Act 1996 because any change to the written statement of employment particulars must be notified in writing to the employee within a month - and a change to pay rates is included here. You can also use our letter to award a one-off pay increase to an individual employee which falls outside the terms of the annual pay review. Whilst it’s pretty straightforward to increase an employee’s pay, the same cannot be said of decreasing it. You cannot unilaterally reduce an employee’s salary without their consent - if you do so, it’s a fundamental breach of contract and you risk the employee resigning and claiming constructive dismissal.


Remember that pay must be at least in line with current national minimum wage and national living wage rates.