Employee promotions are one of the easiest ways to improve retention, engagement, and productivity at your small business.

The highly personal approach to helping advance your team’s career needs to be strategic to make sure you promote the right person for the job—whether that’s growing from cashier to section manager or from supervisor to store manager.

You’ll need to carefully consider how to choose your candidates, decide the best way to communicate a promotion to your other staff, and tackle the added documentation that comes with employee promotion. 

In this guide, we outline everything you need to know about the employee promotion process, including how employee promotion helps grow your business, how to promote an employee, and what to look for in employees who deserve a promotion.

What is employee promotion? 

Employee promotion is the process of hiring a current employee in a more senior role and advancing their career with greater responsibility, higher levels of status or title, and an increase in pay or other benefits.

The purpose of promotion is to reward consistent performance, encourage professional growth, and position the most skilled and productive employees in positions where they contribute most effectively to business goals and success.

So what is the process for promotion? To promote an employee, you need to determine the business need for promotion, set clear promotion goals and criteria, assess and evaluate employees, ensure an unbiased decision-making process, communicate the promotion, and support the employee as they transition into their new role.

How often you promote an employee will depend on your industry, company policy, the role, and the needs of your business. For example, a fast-growing shop with a handful of employees might need to promote more frequently as it continues to scale. 

The criteria for employee promotion should focus on the following areas:

• Performance
• Skills
• Experience
• Leadership qualities
• Culture fit
• Growth potential
• Feedback

The difference between an internal promotion and an external promotion.

During the employee promotion process, you’ll need to assess whether to promote internally or externally. 

Let’s look at the differences: 

Internal promotion.

An internal promotion—also called an internal hire or “hiring from within”—is when a company chooses to promote or transfer an existing employee into a new role.

For example, you promote a sales associate to a department supervisor or a receptionist to a front office supervisor. 

Internal promotions are an investment in your team members who have already put their time and energy into your business. Internal hiring can improve morale, productivity, job efficacy, lower hiring costs, and much more.

External promotion.

An external hire is when a company recruits an outside employee, bringing them into the business to fill an open role.

For example, hiring a department manager from another retail store to fill a similar role, or hiring a new sous-chef to assist your head chef. 

External hiring can involve a higher hiring cost, longer onboarding periods, and more uncertainty about the candidate’s ultimate success in the role, but it can also help bring fresh ideas and a bigger talent pool into your company.

The 3 types of employee promotion.

While an employee promotion often means “higher position, higher salary,” this actually applies to just one of three possible approaches to employee recognition. 

The three main different types of job promotion are:

1. Vertical promotion.

Vertical promotion is an upward movement of an employee within your small business. It involves a change in skills and experience along with a change in salary, responsibility, status, and benefits. This is the most traditional way to promote employees and what most people think of when they think about promotions.

2. Horizontal promotion.

Horizontal promotion is when an employee is rewarded with a pay increase but with minimal or no change in their level of responsibility. For example, an employee moves to a new position at the same level within your organization or you recognize an employee as a “subject-matter expert,” increase their salary to reflect their expertise but keep their duties more or less the same.

3. Dry promotion.

A dry promotion is when an employee gets a new title and an increase in their responsibilities but with no pay raise or increase in their benefits. The idea is to test that employee’s leadership abilities before offering them an actual promotion, helping them develop their skills before an official move upward. 

Unsurprisingly, a dry promotion is the kind of employee recognition with the worst reputation—and one you should avoid wherever possible.

Open vs. closed promotion.

These three promotion types fall into two categories: open-employee promotions and closed-employee promotions.

An open promotion is when every individual in your organization is eligible to apply for a position. If you want a large pool of potential applicants and the needed skills are transferable, you may want to choose an open promotion process.

A closed promotion is when only certain team members are eligible to apply. If you have highly specific requirements, a closed promotion helps you narrow your search and saves you time in finding the right candidate.

6 benefits of employee promotions and why you should promote internally.

Finding great people for open roles can feel like a never-ending headache, but by developing the talent within your retail or hospitality team, your struggles go down significantly.

Here are six benefits of internal employee promotions that might make you reconsider an external search and focus on promoting from within.

1. Improve employee retention.

Employee recognition goes a long way in helping retain hard workers and talented staff. 

According to Gallup, employees who don’t feel adequately recognized are twice as likely to say they’ll quit in the next year, which signals that if you’re not rewarding staff for their hard work, they’re more likely to go and work for someone else who does value them.

Reward hard work and show how it matters to you and your small business by offering internal promotions to employees who deserve it. 

Internal promotions significantly affect employee engagement and morale—and not just for the promoted employee. When other individuals see their peers advance, it can help the rest of the team feel like there’s room for them to rise as well. 

When done right, every promotion can feel like a shared win.

2. Offer career growth.

There’s a reason that a lack of opportunities for advancement is one of the top reasons people quit their jobs. When an employee feels they can’t grow where they are, they start to look elsewhere for career growth opportunities. Opportunities for growth mean a lot to your employees, and they can have a profound impact on your small business, too.

3. Reduce hiring costs and shorten onboarding.

Want to spend less money on hiring and onboarding? Promote employees internally. This helps you save on the costs associated with hiring, which for a small business can sometimes be 1.25-1.4 times the salary you want to pay. 

Additionally, acclimating someone entirely new to your team usually means a longer onboarding process. But when a person is already established at your company, their adjustment window tends to be much shorter. 

By coming into a new role from another department or position, they bring their existing knowledge of your company—a real-life, firsthand experience that can’t be gained quickly and that will be lost if they leave. 

4. Boost employee productivity and motivation. 

Internal employee promotion means that people who are already familiar with your business can transition into their new role with confidence and ease, which helps improve productivity. 

For example, if you promote a cashier to a stock room manager, they’re likely to be already familiar with your business, its products or services, and how you operate. This is in contrast to external promotion, where the employee will have to spend time learning the ropes.

And if you’ve strategically planned your employee promotion, you’ll fully utilize the employee’s skill set in the new role to help achieve results.

A little healthy competition can also positively motivate your employees. For example, boost excitement by emphasizing the potential positive consequences of competition—like how the rewards and recognition that come to top performers can keep other employees motivated.

However, if an atmosphere of competition singles out and highlights low performers, causing people to feel anxious, then workers are more likely to want to sabotage each other or cut corners. So, be careful how you communicate as a leader with your team when stirring up some healthy competition. 

5. Foster leadership qualities.

The most effective business owners and managers are always on the lookout for potential leaders, and constantly taking steps to develop employee leadership potential. 

When you eventually promote an employee, it draws current leaders’ attention to that individual, helping them see the leadership potential within that person and help to develop it, too.

6. Increase the chance of success in the role.

Did you know that it can take some external hires several years to reach the same productivity levels as internal hires with the same job? A rocky or long employee transition can have a trickle-down effect, affecting your team and small business. 

And if that employee turns out to be a poor fit and the role needs filling a second time, you’ll be back to square one.

Another pitfall of too much outside hiring? It can cause your current employees to spend more of their time and energy monitoring and applying for jobs elsewhere, draining their focus from their current role. 

3 things to consider for hourly employee promotions.

If internal promotions aren’t managed well—especially among a team of hourly or shift workers—then one person’s success can stir up feelings of resentment in other team members, while the aspirations of deserving people can go unrealized.

That’s why it’s so important to have a clear strategy when making your employee promotion decisions. Three tried-and-true ways of determining good candidates are: 

1.   Peer feedback. 

Peer feedback helps gauge someone’s suitability for a role because coworkers have a unique opportunity to observe employee performance closely. This means they can offer extremely useful insights into that person’s skills and leadership potential.

2.   Performance reviews.

Traditional performance reviews, carried out by managers, are another great approach when assessing employees for promotion. Just remember that a successful performance review isn’t one-sided but a conversation—a chance to see things from your employee’s perspective.

3.   Company culture. 

A culture fit is the concept of assessing potential candidates to see what type of cultural impact they could have on your small business. For example, do their values, beliefs, and behavior align with your business? Will they choose to promote your culture internally if hired?

When to promote an employee: 5 signs that your hourly employee should get a promotion.

You’re likely to find some employees who think they deserve a promotion, and sometimes they’re right. But you need to assess individuals before deciding who to promote.

Here are the most important qualities you should look for in a candidate when considering employee promotion in your small business:

1. Demonstrates high performance. 

An employee’s track record in their current role is one of the biggest signs that they’re ready for more responsibility. 

If you’re a retailer, consider whether the person consistently makes sales and promotes good customer service. Are they highly productive and engaged in day-to-day tasks? Can they rise to a challenge, and are they efficient and punctual? 

2. Shows initiative and takes ownership.

A person who’s creative, a problem-solver, and a strong decision-maker will probably do a great job in a more senior role.

Consider if your employee steps in without being asked if a task needs doing or a solution needs figuring out. For example, if you work in hospitality and there’s been an altercation at the bar, does your bartender take ownership of their actions and show they can sort the problem themselves?

3. Can roll with changing priorities and new projects.

Someone who can juggle, reprioritize, and show big-picture thinking is an employee you should be recognizing.

Is your employee flexible when plans change, or last-minute projects arise? If they were to take on more responsibility, would they consider the bigger picture for their team and your company as a whole? The person who comes to mind would be well-suited for an employee job promotion.

4. Receives feedback well and grows from it.

A growth mindset is an invaluable quality in any employee, regardless of whether they work in retail, hospitality, on-demand delivery, or other hourly industries. 

If someone is constantly learning, adapting, and reflecting on their successes and failures, then they’ll quickly develop the skills required by a new role and be more likely to stay motivated.

5. Collaborates effectively with other team members.

It’s difficult for a business and teams to succeed without collaboration. Look for someone who gets along well with others, who has a helper mentality, and who values teamwork (a quick giveaway: do they use “our” more often than “mine”?) as an ideal candidate for an internal promotion.

How to promote an employee in 5 steps.

You’ve noticed a business need and want to promote one of your employees. Perhaps your small business has expanded, or you need additional skills to help manage a certain area. Maybe you’ve struggled with employee retention and have gaps to fill. Or there’s a project that requires a certain set of expertise.

But what next?

Follow these five steps to learn how to promote an employee:

1. Set clear promotion goals and criteria.

Set clear goals for your employee promotion strategy. For example, if you’re a retail store, a goal could be to improve your customer satisfaction score or increase sales and meet revenue targets for the following quarter. 

Then, establish the criteria to meet those goals. For example, if you want to increase sales, you’ll ideally need to promote an employee with high sales numbers and good customer rapport. 

Look for specific skills and competencies. Will you need the employee to show leadership skills or team leadership? Do they need technical or operational knowledge to succeed in the role?

2. Assess and evaluate employees.

Now that you have guidelines under which an employee might be eligible, it’s time to decide which employees most deserve a promotion. 

Identify potential candidates by looking at performance reviews, recent appraisals, or assessments to help uncover which employees should be up for a promotion.

If you don’t have this type of documentation to hand, ask other managers to nominate employees who meet the criteria.

Once you have a pool of candidates, conduct interviews to assess which employees meet your criteria the best and gather feedback from peers or other managers to get a holistic view of the employee and their readiness for promotion.

3. Ensure an unbiased decision-making process.

Your employee promotion policy needs to ensure you stay compliant with U.S. Equal Employment Opportunity Commission (EEOC) laws and guidelines. 

When hiring decision-makers are held accountable in this way, it helps communicate that your promotion process is fair and non-discriminatory.

Remove as many internal or external biases as possible to make the decision to promote an employee—or not to promote them—an objective and fair one. If you need help, read up on how to reduce bias in the hiring process when you’re a small business.

4. Announce the employee promotion.

Knowing how to announce an employee promotion will help ensure that sharing the good news doesn’t result in any negative feelings or disgruntled employees.

Firstly, let the team members who didn’t get the position know. Knowing how to tell an employee they didn’t get a promotion is a delicate situation that requires you to focus on soft skills, such as compassion and listening. 

Schedule a face-to-face meeting to share the news personally and ask the employees whether they’re open to feedback about how the interview process went.

Next, meet with the team that the promotion will impact the most, gauge their reaction, take in any feedback, and then make a public announcement to your wider team.

When you make the all-team announcement, it’s obviously a moment to congratulate the person for all the hard work that got them here. But make sure the moment isn’t solely about celebrating the promoted employee. Take the chance to thank everyone who made the promotion opportunity possible.

An employee promotion announcement should include:

• Your congratulations to the promoted employee.
• The reasons for the promotion.
• The employee’s old role and new role.
• The employee’s achievements.
• An invitation for the team to offer their personal congratulations.

It’s important to make a big deal out of the promotion, and to clearly explain your reasons for giving it. This is a chance to inspire your other employees—and to demonstrate how they could follow their coworker’s example.

5. Support the employee as they transition into their new role.

Help your newly promoted employee find quick success in their new role by providing detailed onboarding and training sessions. Continue to support them as they transition with regular check-ins and mentorship.

You should also encourage your whole team to connect with the promoted employee so that your team is excited to move forward with their newly promoted team member. 

Make employee promotion easy with the right tools. 

A small business owner already has a lot on their plate, from managing payroll to ensuring compliance and employee happiness. That’s why a specific small business tool that’s designed to simplify operations is helpful when conducting employee promotions. 

For example, Homebase offers integrations with your current tech stack to help you quickly get set up and start managing employees more effectively. There’s even a hiring and onboarding feature to help you track applicants and share details about openings. 

Sign up for a 14-day free trial to get started.

Remember that this information is not legal advice. When in doubt, always consult an employment attorney with your specific questions about labor law compliance and consequences.