How to Set Employee Salaries

By Emily Suess

Determining how much to pay an employee can be difficult, especially if you’re hiring for the first time. Not only do you need to offer a fair wage that doesn’t break the bank, but you also need to consider how things like benefits, perks, and time impact wages in your region and industry. Here’s how to get started.

Make Wage Considerations Part of Your Budget Planning Process

The cost of hiring an employee amounts to more than just the base wage times the number of hours worked. Figure out what the actual costs will be for you to hire a new employee and plan for those costs in your projected budget before you post the job announcement. In addition to wages and benefits, what other costs will you incur? Will you need additional equipment, supplies, and office furniture? Seeing the big picture will help you determine what you can reasonably afford to offer a new employee.

Establish a Salary Range

For any position, offer a salary range rather than a set wage. It helps you ensure your wages are competitive with other businesses in your industry, and it gives you the opportunity to negotiate with new hires. Those with less experience, for instance, may not be offered the maximum wage, but they’ll have room to grow and you’ll have some wiggle room when it comes to negotiating raises down the road. Use a site like salary.com if you’re looking for data to help you establish a salary range.

Know the Laws Related to Fair Compensation

Obviously, you need to be in compliance with the law. Federal and state minimum wage laws, overtime laws, and fair pay laws will be relevant to you when setting employee salaries. By establishing a salary range in advance of candidate selection, you can remove some of your natural biases from the salary negotiation stage.

Sell Top Candidates on the Benefits and Perks of Working for You

If you’re unable to offer the most competitive base salary but you want to continue to attract top talent, point out the benefits and perks of working for your company. Health, retirement, tuition reimbursement, and other programs are all important to job candidates. But so are fringe benefits like flex time and work from home opportunities. In fact, employee surveys have shown that many employees are willing to work for a slightly lower wage when employers offer flexible hours and other perks that make it easier to maintain work-life balance.

Set Periodic Salary Reviews and Audits

In addition to providing regular performance reviews for employees, it’s beneficial to perform periodic salary audits to ensure the wages you offer are still in line with offerings across your industry. Letting salaries drop below standards can mean losing talented staff and suffering high turnover rates.

Remember that not all small businesses have the same needs. If you’re not ready to hire a full- or part-time employee, outsourcing or contracting to other small businesses can be a huge help.

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Emily Suess
Emily Suess is a full-time technical marketing writer in the software industry and a part-time freelance copywriter. To learn more about marketing your small business online, check out her copywriting blog, Say It With Me.

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