Tens of thousands of teachers are in danger of not getting their pound;1,100 salary increments next year because of a row between heads and the Government over performance pay.
The National Association of Head Teachers is threatening to boycott the merit increases because ministers plan to limit the number of pay rises they fund.
It has told the independent pay review body that the scheme is unworkable and fears an influx of grievance and equal opportunities claims from teachers denied the extra cash.
Around 100,000 teachers will be eligible for promotion from point two to point three on the upper pay spine next September. The basic salaries of successful applicants will rise from pound;29,730 to pound;30,831.
But the Government has said it will only fund 33 per cent of teachers to reach point three, even though it funded 80 per cent to progress from point one to two.
David Hart, NAHT general secretary, said: "Heads are fed up with being asked to implement Government policies without adequate resources. This is going to be extremely divisive and will demotivate thousands of teachers."
Heads estimate that it will take at least three hours to assess each promotion application and are threatening industrial action over the effect on their workload.
Mr Hart said schools did not have the cash to fund the rises themselves and urged ministers: "Treat heads fairly in terms of their budget so they can treat staff fairly."
The NAHT has already said that the workload agreement is in jeopardy because of the funding crisis. It estimates the reforms will cost pound;1 billion.
The union is also angry at the criteria which the Government plans to use for deciding which teachers should receive the rise, saying it is changing the ground rules after the scheme has started.
Unless there are significant changes the union will consider balloting for a boycott of the system next year, he said. If this went ahead, heads and deputies would refuse to carry out performance assessments on those teachers wishing to progress from point two to three on the pay scale.
Mr Hart said he realised the action would run the risk of antagonising the classroom teachers' unions but he hoped they would recognise it was in their interests.
The National Union of Teachers was fiercely opposed to such a boycott, saying it would not persuade the Government and would damage teachers' pay rises.
But John Bangs, the union's head of education, agreed that the funding of pay spine point three was "a disaster for every reason possible".
He said it undermined claims by former education secretary David Blunkett that all teachers who met performance criteria would be given the increases.
John Dunford, general secretary of the Secondary Heads Association, said the Government's poor handling of performance pay could lead heads to quit in despair.
But he said that SHA felt it was too early to discuss a boycott and wanted to wait for the verdict of the School Teachers' Review Body, which will report in November.
The Department for Education and Skills said it was putting pound;205 million towards performance pay this year and would provide training this autumn to help governors and heads understand the system.
A spokeswoman said: "If performance pay is to serve to raise the game of teachers, it is important that heads do not award pay points on an automatic basis."