Jane Watson, head of prism HR, the human resources consultancy operated by Scottish legal firm Lindsays, is advising companies to consider the impact of recruitment costs and other potential losses from colleagues leaving if their pay expectations are not met.

She said: “There is no doubt that the upcoming traditional round of January pay increases will be challenging for many employers. As ever, they are difficult balancing acts. We appreciate that.

“There will be some employees who have seen pay awards in the public sector and will consider those levels as a basis from which to begin negotiations. But, for some businesses, that may be difficult in the current environment.

“What we are advising people to consider, however, is can you afford to run the financial gamble of a valued colleague leaving if they feel they are not being adequately rewarded? Could their departure actually end up costing you more?

“There are real risks that recruitment costs – coupled with the knowledge, clients and contacts that someone may take with them to a competitor – could be more expensive than a pay rise percentage that they felt comfortable with. Recruitment in many sectors also remains a real challenge.”

Pay negotiations – particularly in the private sector – are often tied in with an appraisal process which begins early in the calendar year. Many businesses will also be factoring the impact of an increase in the UK’s minimum wage from April next year.

Chancellor Jeremy Hunt announced in his Autumn Statement, that the National Living Wage will rise by more than £1 to £11.44 per hour – and that the rate will apply to 21 and 22-year-olds for the first time. The current rate is £10.42-an-hour for workers over 23 and £10.18 for those aged 21-22.

Ahead of entering into negotiations, Ms Waston, who works with a variety of SMEs across Scotland, advises companies to carry out a benchmarking exercise across their sector to assess rates of pay and to seek professional advice if in any doubt as to what to do.

She added: “Staff retention is so important to many businesses – as is the balancing act of meeting colleagues’ expectations, particularly for those whose work is clearly profitable.

“Negotiations may not necessarily need to be all about money, of course. There may be room for discussion around holiday time, flexibility over working hours and additional training and development support which can come into play.

“Our advice for employers is to be fair, listen to what staff have to say and consider the big picture.”