What is a Merit Increase?

A Guide for Employers and Workers in the Contingent Workforce Industry

In today's competitive business landscape, retaining top talent and ensuring worker satisfaction are pivotal to an organization's success. One of the key ways employers can incentivize and reward their workers is through a merit increase. While this term is commonly associated with salaried workers, it is equally relevant in the context of the contingent workforce. If you're an employer or a worker working in the contingent workforce industry, understanding a merit increase, how it works, and its impact on your business and career is crucial.

In this blog, we will explore everything you need to know about merit increases, how they fit into compensation strategies, and why they are vital for businesses that rely on contingent workers. We'll also discuss how companies can implement merit increases effectively and the benefits they offer to employers and workers.

Key Takeaways: 

1. What is a Merit Increase?
2. How Do Merit Increases Work in the Contingent Workforce? 
3. Why Merit Increase Matters for Employers 
4. The Impact of Merit Increase on Contingent Workers
5. How Employers can Implement Merit Increases
6. The Value of Merit Increases in the Contingent Workforce 
7. Frequently Asked Questions 

What is a Merit Increase?

A merit increase is a salary increase given to workers based on their performance and contributions to the company. Unlike blanket raises or cost of living adjustments, which apply equally to all workers, merit increases are typically awarded based on performance evaluations that assess how well an employee or contingent worker has performed during a specific period. A merit increase is often tied to meeting or exceeding goal-setting criteria that the worker and their supervisor set at the beginning of the review cycle.

Merit increases are a part of performance management systems in many companies. They are often tied to annual reviews, where supervisors assess workers' performance against established goals, targets, and competencies. The amount of the increase is typically tied to the evaluation, with higher-performing workers receiving more substantial raises. This helps foster a culture of meritocracy, where effort and results are recognized and rewarded.

How Do Merit Increases Work in the Contingent Workforce?

The contingent workforce refers to individuals who work for an organization on a temporary, contract, or part-time basis. These workers are not permanent employees but play a crucial role in helping companies meet their staffing needs. Traditionally, contingent workers, including freelancers, contractors, and temporary staff, may not receive the same benefits and compensation packages as full-time workers. However, many companies now see the value of extending merit-based recognition to contingent workers, especially when those workers significantly impact the performance management process.

A merit increase may not always manifest for contingent workers as it does for full-time workers. In many cases, contingent workers are paid a set hourly or project-based rate, and their compensation may not include traditional salary increases. However, the following options are often used by employers to recognize and reward the performance of contingent workers:

• Rate Increase: A contingent worker who demonstrates high performance, completes projects on time, or exceeds expectations may be given a higher hourly or project-based rate upon the renewal of their contract or during a performance review.
• Contract Renewal: For contingent workers, merit increases may be linked to the renewal of their contracts. Workers performing well during their initial contract period may be offered a longer-term contract or better pay upon renewal.
• Bonuses or Incentives: Performance-based bonuses are another way employers can reward contingent workers. These financial incentives often align with achieving specific targets, such as meeting deadlines, improving performance, or contributing to the project's overall success or organizational performance.

Why Merit Increases Matter for Employers

In the contingent workforce landscape, offering merit increases is an important strategy for maintaining a motivated, productive, and loyal workforce. Let's look at some of the key reasons why merit increases matter for employers, particularly those working with a contingent workforce solution:

1. Attract and Retain Top Talent

Offering merit increases demonstrates a company's commitment to rewarding hard work and performance. When contingent workers know that exceptional work will be recognized, they are more likely to stay with the company for longer or return for future contracts. This helps to reduce turnover and ensures that businesses retain valuable skills and experience.

2. Motivation and Engagement

A merit increase can serve as a powerful motivator for contingent workers. By offering a financial reward based on performance, employers encourage workers to put forth their best effort, align with organizational goals, and deliver high-quality results. A motivated workforce is typically more engaged, productive, and willing to go the extra mile.

3. Increased Productivity

When contingent workers are rewarded for their hard work, they are likely to work more efficiently, increasing productivity. In industries where businesses depend on a flexible workforce, like staffing, logistics, or project-based work, merit increases can boost overall productivity.

4. Competitiveness in the Job Market

With the rise of gig economy workers and flexible staffing models, competition for top talent in the contingent workforce has increased. By offering merit increases, employers can differentiate themselves from competitors and attract the best contingent workers. The promise of performance-based rewards can be a key selling point in a competitive labor market.

5. Cost Management

While merit increases reward workers, they also serve as a way to manage labor costs. Since merit increases are tied to individual performance, they allow companies to control compensation increases based on the value being delivered by each worker. Companies don't have to provide blanket raises across the entire workforce but can direct compensation resources to those who genuinely deserve it.

The Impact of Merit Increases on Contingent Workers

For contingent workers, merit increases offer several advantages in terms of financial compensation, career development, and job satisfaction. Here's a closer look at how merit increases can positively impact contingent workers:

1. Enhanced Job Satisfaction

When contingent workers see their performance recognized through merit increases, it boosts their job satisfaction and fosters a sense of accomplishment. They feel valued for their contributions, which improves their overall experience working with the company and increases their likelihood of returning for future contracts.

2. Career Growth

Merit increases are a reflection of an individual's career growth and progress. For contingent workers, merit increases can validate their skill development and professional growth. It can also lead to additional opportunities within the company, including higher-value contracts or more responsibilities.

3. Increased Earning Potential

The most obvious benefit of merit increases is the financial reward. A merit increase provides contingent workers with increased earnings, which can enhance their financial stability and job satisfaction. Higher pay can also lead to better opportunities as workers build a stronger reputation in the industry.

4. Networking and Reputation Building

When a contingent worker consistently delivers strong results and earns merit increases, they enhance their reputation within the industry. This can lead to additional opportunities, both within the same organization and externally. Merit increases can signal a worker's competence and reliability, helping them expand their professional network and increase their marketability.

How Employers Can Implement Merit Increases

Several strategies can be employed for employers looking to implement merit increases in the contingent workforce. Here are some best practices:

1. Set Clear Performance Expectations

Before awarding merit increases, employers should set clear and measurable performance expectations. This ensures contingent workers understand what is required of them and can work toward achieving those goals. Clear expectations also make it easier for employers to evaluate performance and determine merit increases reasonably.

2. Regular Performance Reviews

Merit increases are typically awarded during performance reviews. Employers should regularly review contingent workers' performance, whether quarterly, semi-annually, or annually. These reviews should be based on the objectives set at the contract's start and assess the worker's contributions to the company.

3. Offer Transparent Communication

Employers should communicate openly with contingent workers about how merit increases are determined and what factors are considered. Transparency helps build trust between employers and contingent workers and ensures that expectations are aligned.

4. Be Fair and Consistent

Merit increases should be awarded fairly and consistently to all contingent workers based on performance. Employers should avoid favoritism and evaluate all workers using the same criteria. This fairness will help maintain morale and trust in the merit increase process.

5. Use Merit Increases as a Retention Tool

Employers should view merit increases as a tool for retaining top-performing contingent workers. Employers should incentivize them to return with performance-based rewards, rather than letting high performers slip away after their contracts end, fostering long-term relationships.

FAQs 

1. What is a merit increase?

   • A merit increase is a salary boost given to workers based on their individual performance. Unlike blanket raises, merit increases are tied to how well an employee (or contingent worker) meets performance goals, competencies, and overall contributions to the company.
     
     

2. How do merit increases work for contingent workers?

   • For contingent workers, merit increases can manifest in several ways, including a higher hourly rate, a renewed contract with improved compensation, or performance-based bonuses. These increases are typically linked to the worker's performance during a previous contract or project.
     
     

3. Do contingent workers receive merit increases like full-time employees?

   • Merit increases for contingent workers may differ from those given to full-time employees. While permanent staff might receive annual salary adjustments, contingent workers might see increases upon contract renewal, in the form of a rate hike, or as performance-based bonuses.
     
     

4. Why do employers offer merit increases to contingent workers?

   • Merit increases help employers attract, retain, and motivate top talent in the contingent workforce. Offering performance-based rewards enhances job satisfaction, boosts productivity, and fosters loyalty, making workers more likely to return for future contracts.
     
     

5. How can merit increases impact contingent workers?

   • For contingent workers, merit increases can lead to enhanced job satisfaction, career growth, and increased earning potential. It also helps build a worker's reputation in the industry, leading to more opportunities both within and outside the company.
     
     

6. How are merit increases determined for contingent workers?

   • Merit increases are typically determined based on the worker’s performance as measured against predefined goals or criteria. Employers may use regular performance reviews or assessments at the end of a contract period to evaluate the worker’s contributions and decide on the increase.
     
     

7. Can a contingent worker receive a merit increase during their contract?

   • While merit increases are often linked to contract renewal, some employers may reward high performance during an ongoing contract, such as by offering mid-contract rate increases or bonuses for exceptional work.
     
     

8. Are merit increases guaranteed for contingent workers?

   • No, merit increases are not guaranteed for contingent workers. They are based on performance evaluations and how well a worker meets the company's expectations. High-performing workers are more likely to receive merit increases, but not all contingent workers will necessarily qualify.
     
     

9. How often should employers provide merit increases to contingent workers?

   • The frequency of merit increases depends on the company's policies and the nature of the worker's contract. Typically, merit increases are considered during contract renewal, but companies should also assess performance regularly (e.g., quarterly or annually) to determine the merit increase.
     
     

10. What are some best practices for employers when implementing merit increases for contingent workers?

    • Employers should set clear performance expectations, conduct regular performance reviews, and ensure transparent communication with workers. Merit increases should be awarded fairly and consistently based on objective criteria, helping build trust and motivation among contingent workers.
      
      

11. How do merit increases help employers manage labor costs?

    • Merit increases allow employers to reward high-performing workers without providing blanket raises across all contingent staff. This helps control costs by allocating compensation increases to those who deliver the most value to the organization.
      
      

12. How can contingent workers increase their chances of receiving a merit increase?

    • To increase the likelihood of receiving a merit increase, contingent workers should focus on exceeding performance expectations, meeting set goals, maintaining strong communication with their employers, and demonstrating their value to the organization throughout the contract period.
      
      

13. Are merit increases different from performance bonuses?

    • Yes, merit increases are generally a permanent raise in compensation, often tied to a contract renewal or performance review. In contrast, performance bonuses are usually one-time financial rewards for meeting specific targets or goals.
      
      

14. Can merit increases be used to retain top-performing contingent workers?

    • Yes, merit increases are a powerful retention tool. By offering financial rewards for high performance, employers can motivate contingent workers to stay with the company for longer periods or return for future contracts, reducing turnover and maintaining a skilled workforce.
      
      

15. What role do merit increases play in fostering a high-performing contingent workforce?

    • Merit increases create a culture of recognition, motivating contingent workers to perform at their best. When workers know their efforts will be rewarded, they are more likely to deliver high-quality work, stay engaged, and contribute to the company's success.
      
      
      

Final Thoughts: The Value of Merit Increases in the Contingent Workforce

Merit increases are essential to any effective compensation strategy, especially in industries that rely on the contingent workforce. For employers, offering merit increases provides a way to motivate, retain, and reward top talent, ensuring that the best workers continue contributing to the company's success. For contingent workers, these increases validate their hard work, enhancing job satisfaction, career growth, and earning potential.

Companies can foster a positive, productive, and loyal contingent workforce that drives business success by implementing a thoughtful and transparent merit increase program. Whether you're an employer looking to build a high-performing team or a contingent worker seeking recognition for your hard work, merit increases are essential to a fair and adequate compensation strategy.

If you're a business looking to develop a merit increase strategy for your contingent workforce or a worker looking to understand how to earn a merit increase, consider partnering with a human resource solution provider or contingent workforce solution provider who can help you manage and optimize your workforce's performance and compensation.

Need Help?

Need help managing your contingent workforce? Contact TCWGlobal today to learn more.

Whether you need expertise in Employer of Record (EOR) services, Managed Service Provider (MSP) solutions, or Vendor Management Systems (VMS), our team is equipped to support your business needs. We specialize in addressing worker misclassification, offering comprehensive payroll solutions, and managing global payroll intricacies. 

From remote workforce management to workforce compliance, and from international hiring to employee benefits administration, TCWGlobal has the experience and resources to streamline your HR functions. Our services also include HR outsourcing, talent acquisition, freelancer management, and contractor compliance, ensuring seamless cross-border employment and adherence to labor laws. 

We help you navigate employment contracts, tax compliance, workforce flexibility, and risk mitigation, all tailored to your unique business requirements. Contact us today at tcwglobal.com or email us at hello@tcwglobal.com to discover how we can help your organization thrive in today's dynamic work environment. Let TCWGlobal assist with all your payrolling needs!