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.
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.
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:
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:
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
Several strategies can be employed for employers looking to implement merit increases in the contingent workforce. Here are some best practices:
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.
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.
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.
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.
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.
What is a merit increase?
How do merit increases work for contingent workers?
Do contingent workers receive merit increases like full-time employees?
Why do employers offer merit increases to contingent workers?
How can merit increases impact contingent workers?
How are merit increases determined for contingent workers?
Can a contingent worker receive a merit increase during their contract?
Are merit increases guaranteed for contingent workers?
How often should employers provide merit increases to contingent workers?
What are some best practices for employers when implementing merit increases for contingent workers?
How do merit increases help employers manage labor costs?
How can contingent workers increase their chances of receiving a merit increase?
Are merit increases different from performance bonuses?
Can merit increases be used to retain top-performing contingent workers?
What role do merit increases play in fostering a high-performing 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 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!