Step increases: Overview, definition, and example
What is a step increase?
A step increase is a method used by some employers to raise an employee’s salary over time based on predetermined milestones or periods of service. Typically, this involves a set schedule or "steps" where employees receive a raise at regular intervals, such as after a year of service, or after they meet certain performance or experience criteria. These increases are often part of an employee's contract or a union agreement and are designed to reward loyalty and experience.
Why are step increases important?
Step increases are important because they provide a clear and predictable path for employees to earn more as they continue to work for the company. For employers, it’s a way to retain skilled employees by offering regular, automatic raises instead of negotiating pay every year. Step increases can also boost employee morale, as they feel their hard work and continued service are being rewarded.
For businesses, using step increases helps with budgeting and payroll management because the raises are planned in advance. It can also reduce the chances of wage disputes, as the increase structure is usually well-documented and agreed upon by both the employer and the employee.
Understanding step increases through an example
Imagine a software company hires a developer on a salary of $60,000 a year. Their employment contract includes a step increase structure, meaning they’ll receive a 5% salary increase after two years of service, and another 5% increase after another two years.
After two years, the developer’s salary increases to $63,000 (a 5% increase). After another two years, the salary increases again to $66,150. This predictable system rewards the employee for their continued work at the company and provides them with a clear understanding of when and how their pay will increase.
Example of a step increase clause
Here’s how a step increase clause might look in a contract:
“The Employee will receive an annual salary increase according to the following schedule: a 5% increase in salary after two years of service and additional 5% increases every two years thereafter, subject to performance evaluations and continued employment with the company.”
Conclusion
Step increases are a valuable tool for both employees and employers. They provide employees with predictable and automatic raises based on their length of service or performance, while businesses benefit from a structured and transparent way of rewarding employees. Step increases can help retain experienced staff, reduce turnover, and encourage long-term commitment.
If you're a business owner or employee, understanding how step increases work can help you navigate compensation planning and ensure everyone is clear on the path to higher earnings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.