Ep. 377: Comprehensive Guide To Pay Raises

Welcome to the Secret Sauce of Outsourcing podcast that's dedicated to making you better at working with OFS online Filipino specialists. This is episode 377, comprehensive guide to Pay Raises. So it's January. As I record this, and at my company at onlinejobs ph, we always do pay raises in January. And so we're thinking about it right now. I'm not sure when this will be published. Maybe someone on my team would know that. But it probably won't be early January when it's published. So hopefully when you get this, it's relevant to you. So let's talk about pay raises. Is there a right way to do it? How much should you give or how often? What's the best way to do it? So let's talk about all of the things to consider when giving a pay raise. At least everything that we consider and all the things I can think of. So, number one, when should you give a pay raise? It depends. So with my team, we give raises in January. So if someone started in November, they're probably not getting a raise in January. But if someone started in June, we're probably going to give them a raise in January. It may not be as big of a raise if they had worked for us for a full year, but it might be. All of this is completely up to you. You can give the raise whenever you feel like. When I first started, I would hire someone on a temporary rate, and then after three or four months, I would raise them to a more reasonable rate. And now that rate isn't always what they were asking to make, but often it was at other times. I've given raises at random times in the year because someone was so dang good, I wanted to reward them and I just gave them a raise in the middle of the year. Now, some people, depending on their business situation, give raises when they start making more money. You hired an ofs, you're not making very much money. You work with them for a year or two years or whatever. When you start making more money, you give them a raise. That's perfectly fine. Look, there is no standard for how these raises should be done. You do what you can, and as long as you let someone know the situation ahead of time, they're probably going to be okay with it. If you're new business, if you're a startup and you're not making very much money, and you tell them, hey, look, here's our situation. When we start making more money, we're going to give you a raise, they're going to Be okay with that. And they're probably going to work hard to help you make more money because they want to get a raise. Not always, but it's pretty common. So next, how much of a salary increase should you give? How much is the raise? So typically this depends on what you can afford, what sounds reasonable, and the performance of the ofs. For us, almost everybody on our team works full time. So we give raises of 25 to $75 per month per person. Sometimes we'll give a bigger raise than that. We've given up to like $150 raise for someone, but that's uncommon. Now, all of this depends on how long they've been with the company and their current performance this past year. So some people I know, they show up every day. They're really, really great. They work hard, they put in the work they. Others I just don't know if they show up every day because I question the quality of their work, I question the quantity of their work. I just question it. And so we're not going to give as big of a raise to that person. Now, if you have an hourly person, that raise for us would be somewhere between 15 cents an hour and 50 cents an hour. Sometimes people are giving a dollar an hour. Now, just so you know, if someone's making $5 an hour and you raise them to $6 an hour, well, you know, that's a, that's a 20% raise. That's pretty good. One of the things that we consider when giving a raise is we want it to be sustainable. So we don't want to be giving a raise. So that if we continue giving this raise in four years, that's not a reasonable amount for us to be paying. So that sustainability of raise is important. Next, how often should you give a raise? Well, we do it once a year. Some people do it more often, some people do it less. For us annually, we have found, keeps people incentivized. It also makes accounting really easily, really easy. So if we give a raise in January, then when we go to calculate the 13th month at the end of the year, it's pretty easy. We've paid the same amount to this person every single month of the year. You can do it however you want. The 13th month is still pretty easy to calculate. It's just nice to always do it at the same time every year. At least for us. That's how it works. Next question. Does a raise affect their 13th month? Yes, it does. If you're paying someone $500 a month every month of the year starting in January and December, you're going to pay them. December is $500 plus the 13th month, which would be $500 because that's each month's payment. An easier way to calculate that 13th month is to add up all that you paid them and then divide by 12. So if you were paying someone $1,000 a month, you would add that up 12 times. It would be $12,000 and divide by 12. Well, that's $1,000. But if you only did it for eight months, you would add up $1,000 a month, eight times however much you paid them throughout the year. Divide by 12. That's the 13th month. So if you give a raise. Yeah, if you give a raise partway through the year, that's okay. You still just add it all up and divide by 12 to figure out exactly what the 13th month is. It doesn't have to be complicated. You can give a raise in the middle of the year. Next question. Does a raise affect their benefits like philhealth or SSS or poggibig? So I just want to point out these benefits are optional. You do not have to pay these things. We do, but we didn't in the beginning. It took us a number of years before we started doing this. So if you're not paying your OFS benefits, you can zone out during this. So to answer these questions, does it affect their health insurance? No. Health insurance is not based on wages. Also no. For their pagibig, which is the Philippines government owned house lending program, Most people for Pagibig pay the required minimum of 200 Filipino pesos per month, which is pretty low for PhilHealth and SSS. Yes, the raise will affect their rates, but not by very much. PhilHealth payments are 5% of their salary starting in January of 2024. In 2023, it was 4% of their salary. I don't remember the last time it went up, but it recently went up from like 3% to 4%. Now it's going up to 5%. So quite a bit of increase in the recent years. But health costs are also increasing and health care is improving in the Philippines. So it's 5% of their total wage for PhilHealth. So if their wage is $500 a month, their Phil Health would be $25 a month. If you gave them a raise to 550. I'm just quickly doing this math in my head. It would be about $27 or $2,750. Now from 25 to 27.50. So not that big of an increase in the PhilHealth costs because of the raise you gave them. Again, PhilHealth is about 5% of their salary. For SSS, it would be the same calculation, but SSS is 13% of their salary. So if you're paying SSS and you're giving a raise, well, you're going to take 13% of that raise amount and that's going to go to SSS up to a certain amount. So SSS caps at a certain amount. So if their person is making over that amount, then the raise isn't going to affect their SSS at all. And I actually think that amount of the cap is if they're making $500 or more. Like at $500, SSS stops going up. Quote me on that, because I'm not exactly sure. That's what I seem to remember. So the raise may or may not affect their SSS payments. So next question. Should you guarantee your promise a raise to people? Well, so we don't. We don't ever guarantee or promise a raise. I have told people in the past that after a few months I'm going to evaluate and we'll raise your wages accordingly according to performance. This is all up to you. Some people write it into the contract. You're going to get a raise every so often. Some people don't. We don't. You can. It's not. There's no correct way to do this in my case. Our team pretty well knows that they're gonna get a raise every year. They just don't know how much. And so we hope that that helps them want to try really hard throughout the year. Next. What if you can't afford to give a raise? Well, that's okay. It's perfectly fine not to give a raise. Just try to be honest and upfront with your OFS about your situation. Hey, I can't give you a raise this year because I'm not making very much money or things are really tight or the business isn't doing super well. This isn't your fault, but I'm going to give you a raise when I can. When the business is making more money. As long as you treat them well and are fair with them, this probably won't be an issue for you. Next. Can you give too much of a raise? Well, yes and no. So if you're already paying on the upper end of wages and you give too much of a raise, well, it can set a bad precedent. It can also be difficult for you in the future to continue to give raises. So just something to consider. If someone's on the low end of wages, well, it'll be hard to give too much of a raise. Something we consider in this is we want to help people move their status. We don't want them to stay at the status where we hired them at, socially or economically in life. We want them to improve their status. So when we give raises or when we give bonuses at the end of the year, we're trying to help people increase their status, not change their status socially, but to. But to feel like they're moving up in life. And a raise is one of the ways to do that.