How Much Should We Pay Employees? Consider These 5 Payroll Tips

Here are five tips to help you decide what wage to pay your employees.

Are you unsure of how much to pay employees? The Federal Labor Standards Act defines the minimum wage for a variety of business categories. Although employers must comply with the FLSA, some states have enacted a “living wage” that is higher than FLSA’s listed minimum wage. Therefore, it is essential for small business owners to, at the very least, familiarize themselves with these standards and develop a wage commensurate with the job at hand.

Here are five tips to help you decide what wage to pay your employees:


1. Pay what you can afford.

Don’t play this by ear! Before you think of setting up a pay standard for employees, you need to know what you can afford. Start by analyzing your current financial structure, past business history, and a reasonable future. Budget for payroll, expansion, and future trends. Remember, new hires come with related expenses such as equipment, supplies, training, tools, etc.

Next, research what other businesses in your area, and business sector, are paying to help guide you, but don’t let these figures become the determinate factor. Consider the bigger picture.


2. Prepare detailed job descriptions.

Preparing job descriptions for new employees is a good start. When written well, a job description does not limit employee performance. Instead, it will list tasks and help you assign adequate compensation. In fact, job descriptions allow you to clearly define the role without eliminating cross-functional and team tasks.

More importantly, your job descriptions should list the knowledge, skills, abilities needed to do the job, and the qualities you want a new hire to bring to the table. For example, you might assign one level of compensation to a job requiring a college degree, and a different level of compensation to a position requiring certification. Creating a strong HR department, with one or more employees that have earned a degree in Human Resources, can help with the process.


3. Establish a pay range.

Compare apples to apples. Research what job titles are paying in your area. This ensures confidence that you are offering a wage or salary that is similar to that of other employers in your sector, but still  within your budget.

Once you finalize research, consider how you line up with competitors. While it is not required, it’s smart to fall within a window the competition has laid out. For example, set a low, mid, and high pay range for each job title. Then, examine how that aligns with your competition. Your low rate can be lower than the competitive rate, but you’ll want the mid and high rates to have the same spread.


4. Plan for the future.

Once you have drafted a compensation structure, you’ll need to build a formula that adjusts periodically with inflation and to stave off competitive wage gains. For instance, a mobile workforce can drive you to increases you may not want to give across the board. You may find yourself with the difficult choice of letting an employee go in order to chase a higher wage.

Be advised, however, that singling out an employee for an increase can violate the compensation structure and risk legal issues concerning discriminatory practices. Meanwhile, if applicable, manage your company on the defense against unionization. Employees will not seek a negotiating voice if they feel they are secure in a credible compensation structure with a future.


5. Get help from a compensation professional.

You may decide that you need the tools and expertise of a compensation professional. The expense of doing so can often provide a good return your investment in reduced employee turnover, recruitment, and training.

A compensation professional will also help provide you the buffer of extra credibility in the eyes of the employees affected. Finally, remember that compensation is a total package that includes required and discretionary employee benefits, so compensation can take forms other than cash.


Dee Fletcher is a freelancer and ghost writer, and guest blogger. She writes mostly about current trends or events in various industries, but also writes advice and how to articles. She works from her home in Southern California and loves to visit the beach as often as she can.


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