Figuring out how much you should pay your employees can be a challenge. You might be worried about dishing out more than you can afford, but you also want to make sure that you offer fair pay to your employees. Knowing how to set salaries is important for current employees as well as future employees. Keep the following tips in mind when determining how to set salaries.
How to set salaries
If you’re a new small business owner or a seasoned one, it’s common to feel stuck when it comes to a compensation strategy. Here are some factors to consider when setting an employee’s salary.
Look at experience
Part of your compensation strategy will need to be based on the employee’s experience. If a potential employee has had significant experience in their field, they typically make more than someone without experience. Someone who has worked in an occupation for 11 years will expect higher wages than someone who has worked in the same occupation for two years.
And, if you are considering changing a current employee’s salary, you will need to take into account how long they have worked for you and their value to your business. Also, a salary change can correlate with their performance. If an employee has gone above and beyond, you may want to raise their salary.
How to set salaries depends on your business’s location. Know the demand for certain occupations in your business’s area. If there are less people with skills needed for that job, you will need to pay more. Remember that supply and demand holds true for setting salary.
You will also need to factor the cost of living into your small business’s location. For example, if your business is in New York City, you will need to offer higher compensation than an area with a lower cost of living. A salesperson in New York City averages $44,000 per year while the national average is $39,300. Location plays an important role in determining how to set salaries.
Know how to benchmark salary, which means comparing different salaries to find a competitive salary range. Look at small businesses around you to get an idea of how to set salaries. Check out the United States Bureau of Labor Statistics to find average wages for jobs at your business. Do not forget how important location is, and make sure that you do not salary benchmark across different, diverse locations.
Say a small business in your area pays a secretary $28,000, another business in the same area pays $30,000, and another pays $32,000. You may want to make your salary range $28,000-$32,000, and set your secretary’s salary at a feasible number within that range. Keep in mind that you don’t want to pay employees more than the job is worth to you.
Ask the applicants
Though knowing how to set salaries can be difficult, asking job applicants questions about pay can help alleviate some stress.
On an application, include questions like, “What was your salary at your last job?” Also, ask them how much they would like to make at your business as well as the minimum amount they would accept. Getting ideas from job applicants about the salary they expect can really help you determine how to set salaries.
Though asking applicants does not apply to existing employees, you can see if their salary requests are being met through a yearly meeting to discuss salary.
Consider other benefits you might offer your employees when figuring out how to set salaries. Attractive benefits like a flexible schedule or vacation time are important components of an employee’s overall hiring package. Gauge salary based on all forms of compensation and benefits you offer.
Now that you’ve determined how to set salaries, use Patriot’s online payroll software to easily pay your employees. Enter your payroll data in three easy steps. Start your free trial now.
This article was updated from its original publish date of 03/19/2012.
This is not intended as legal advice; for more information, please click here.