Your employee can refuse a pay increase. An explanation is not necessary, nor is it advisable to seek out the reason behind the refusal. But, you are correct in recognizing that a letter documenting the refusal is necessary.
Here is a great form letter used by the City of Greensboro, NC. This may be just what you need to document the situation and situations in the future. You will also need to write a company policy addressing this issue. The language in this letter is a great head-start to a policy and procedure.
http://www.greensboro-nc.gov/Home/ShowDocument?id=26726
Hope this helps!
April 2018
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