Can't Afford Big Raises? Here's What You Can Do as a Small Business Owner Instead

Now that 2023 is winding down, a lot of small business owners are in the process of conducting performance reviews and letting employees know what their 2024 raises will look like. But perhaps you've reviewed your business bank account time and time again only to draw the same conclusion -- you just can't afford to raise your workers' pay going into the new year.

Many small businesses are still dealing with higher operating costs. Inflation -- and the Federal Reserve's resulting stretch of interest rate hikes -- has made it more expensive for small businesses and everyday consumers alike to borrow affordably.

It's easy to see why you may not be able to swing big raises -- or any raises -- for 2024. But that doesn't mean your employees are guaranteed to jump ship. If you offer other much-wanted benefits, you may find that you're able to largely retain talent even in the absence of giving a nice pay boost.

Time off and flexibility could go a long way

Maybe your company just doesn't have the money to bump up salaries across the board. And while you could technically just boost the pay of your highest performers, if word were to get out about that, it might lead to animosity among employees and even more of a headache for you.

A better bet may be to offer non-financial benefits -- but benefits that have a lot of value nonetheless. These include more time off and more flexibility with scheduling.

A good 86% of Generation Z workers would be willing to give up a percentage of their salary raise for better benefits, while 76% would be willing to do so for a more flexible work arrangement, according to a recent report from Schwab. Among millennials, 74% would do the former and 67% would be on board with the latter.

So, let's say your employees are currently entitled to two weeks of vacation each year. Bumping that up to three weeks might make your employees more willing to overlook an absent raise.

Similarly, let's say you're able to work things out so your employees can do their jobs remotely a couple of days per week. For some, that could mean saving money on commuting, pet care, and child care. For others, it could simply be a nice perk that allows them to sleep in a bit longer and be home to get dinner started for a smoother evening.

You can also try to be more flexible with workers' hours. Rather than insist on the classic nine-to-five setup, for example, you may have employees who really want to be home by 4:00 p.m. to grab their kids off the school bus and shuttle them to activities. Allowing them to come in super early and leave at 3:30 p.m. could improve their quality of life -- and inspire them to stay in the absence of a raise in 2024.

You can only do your best

You may be feeling bad about not offering a generous raise for your employees this winter. But if that's the situation you're in, rather than stress over it, try to compensate elsewhere.

Also, be open with your team about your company's financial situation. You may find that your employees are more than sympathetic, and that they're happy to accept better benefits like added paid time off and flexibility instead of more money.