Great employees are a valuable asset for any business. Their positive attitudes, skills and experience are crucial for achieving goals and growing your customer base and bank balance. However, finding great employees is only half the battle, and retaining them and encouraging their loyalty to your organization is essential for long-term success. In order to do this your staff members need to feel valued and important and one of the best ways to do accomplish this is through their pay packet.
If you are a start-up or a relatively new company, you may not yet have a pay structure in place. If so, it can be difficult to know what is considered a competitive salary for your industry, your geographical area and the type of jobs that your employees are doing.
With this in mind, we have created this 7 step guide to calculating how much to pay your employees using a pay scale system specifically designed for your business.
Step 1: Make a list of your staff and their job titles
The pay scale system that your create needs to be representative of the people in your organization and the particular jobs that they do.
Ideally you will already have job descriptions in place for each of your employees. These will detail their job title along with the individual roles and responsibilities they hold within your business. However, many job descriptions actually go beyond this and also include the qualifications, skills and experience that an ideal candidate for the role would have (regardless of whether the current employee in this role fulfils them all).
This task needs to be undertaken for every single employee within the business, from entry level staff right through to senior executives and beyond
Step 2: Get Researching
Once you have established job titles and descriptions for each role within your organization it is time to start researching the average pay received for doing those jobs.
As with most research, this is usually best done online and there are a number of different places that you can look for information.
- Job websites, advertisements, and competitor and recruitment/talent acquisition websites. These are a great source of information as you can see what similar roles are being advertised at, and even check out what remuneration package your competitors are offering.
- Professional associations within your industry may be able to give you advice on pay scales. Many public sector jobs have their pay scales widely available online.
- Government and Local Authority websites tend to be the most accurate and reliable source of information for establishing a pay scale. For example, if you are in Australia then you should look at http://www.fairwork.gov.au/. If you are based in the US then the Bureau of Labor Statistics provides information on hourly wages and annual salaries for a wide range of jobs and industries. http://www.fedjobs.com/ shares the base general pay scale for all Civilian Federal Employee roles.
Step 3: Hourly Wage vs. Annual Salary
A crucial element of deciding how much to pay your staff lies in determining whether they will be paid an hourly wage or an annual salary. This question usually comes down to the type of role that they perform within the company.
In a nutshell, salaried employees can or should work as many hours as the business requires, but they will only receive a set amount of money each week, regardless of how many hours they work. In comparison, employees who are paid by the hour are usually contracted to work a set number of hours per week. However, if the business requests that extra hours of work be carried out, then the employee is entitled to further reimbursement, aka overtime!
There are advantages and disadvantages to both types of payment. As a general rule, those roles with an hourly wage are usually found being paid to entry or mid-level staff in industries such as retail and hospitality. Management roles are almost always salaried owing to the increased responsibilities held by these employees, meaning there is a greater need for them to serve increased or inconsistent hours.
Sales commission and bonuses are also a great way to motivate staff and to reward them for great performance, particularly if they are receiving a basic or lower rate of pay.
Step 4: Calculate your Budget for Salaries or Wages
Before you create your pay scale you first need to establish how much you can afford to pay your employees. You can expect to need anywhere between 18% and 52% of your operating budget to pay salaries or wages.
Step 5: Create Your Scale
Well, actually it is lots of little scales rather than one big scale. Taking the research that you have done and the list of job titles/descriptions that you have created, you need to decide on a minimum and maximum salary or hourly rate of pay per role. That’s right, each role within your organization needs it own little pay scale.
This can be quite a complicated and time consuming processes, particularly as once you have done this for every role within the business, you need to calculate the total cost of your entire staff if every member were to receive the highest scale of pay for their position. So that’s the top scale for your receptionist + the top scale for your operations director + the top scale for your cleaner etc. No one is exempt. Once you have totalled these up you need to see if this fits into your budget. We can almost guarantee that you are going to have to rework your scales a few times to get it right!
You also need to consider how competitive you wish to be. For example if you need highly qualified and experienced staff to be competitive in your industry, then you should expect to set your pay scales higher to reflect the calibre of the employees you wish to attract.
Step 6: Scale your Employees
So you have your scale in place and you think that your job is done, right? No not quite. You now need to work out where each of your current employees sits on their pay scale so you can work out how much they should be getting paid.
Remember we said in Step 1 that you should create job descriptions based on what your ideal candidate for that role should have? Well, that was because you are very unlikely to have an employee that ticks every box, at least as soon as they start in that role. The easiest way to scale your employees is to compare them against this list of ideal qualities. The more boxes they tick, the further up their scale they go.
Once of the benefits of having scales in place for each role is that it gives your employees the chance to ‘earn’ pay increases through developing their skills and experience within the role, enhancing their professional development. These are ideal for creating Key Performance Indicators (KPI’s) which you can reward with steps up the pay scale and other bonuses.
Step 7: Annual Evaluations
Regular evaluations of pay scales are important. Not only is it discouraging for employees to spend years of loyal service with a company only to fail to see their salary increase, but there are outside factors to consider. These include changes in the cost of living, interest rates and more factors beyond yours or their control.
Keeping a fluid and flexible approach to your pay scales will ensure that your business is able to adapt to both internal and external changes, increasing the likelihood of keeping your employees stable and happy.
Whilst we haven’t included this in our 8 step guide to calculating how much to pay your employees, it is worth mentioning to appeal of non-salary benefits. There are some employees that would be happy to accept a lower salary if they are offered other attractive benefits.
These can include things like:
- Health Insurance
- Stock Options
- Extra Holiday Entitlement
- Gym Membership
- Work From Home Option
The options are extensive. By looking at your average employee demographic you may be able to spot non-salary benefits that would appeal to them. Whilst these are by no means without cost, you may find that they are a good way to lower the starting scale of pay across your organization.