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Ask About Wages and Benefits

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By | May 26, 2012

Dear Toolkit,

Very soon I'll need to hire a few part- and full-time employees. How should I go about deciding what to offer these people in the way of wages and basic benefits?

Expanding Entrepreneur

Dear Expanding,

Since you'll want to retain (as well as just attract) competent employees, you'll need to develop a wage and benefit plan that is competitive for your market, but also affordable for your budget. A good place to begin is with a job description; drafting one will force you to define exactly what each employee will be expected to do.

Once the job is defined, a cruise through your local paper's help-wanted ads will give you an idea what others are offering for similar positions. Salary data for your industry also may be publicly available. 

When determining hourly wage rates or salaries, try to establish a range for each position. Setting a minimum and maximum rate for each classification will permit you to recognize differences among employees with regard to their length of service and performance. Rate ranges need to be reviewed regularly for fairness, competitiveness and cost-of-living adjustments.

And remember that whatever hourly rate you choose, you need to multiply it by at least 130 percent to learn your actual hourly cost. Your portion of mandatory payroll taxes, workers' compensation insurance and fringe benefits needs to be paid to a variety of third parties--over and above the hourly pay you give your employee.

Once you have a clear job description and a wage range in mind, you can begin recruiting. But when you start negotiating with prospective employees, keep in mind that salaries and wages are not the main motivators for good job performance. Personal recognition for achievement, opportunities for growth, enriched environment and respect count as much or more than dollars. For a thorough discussion of good recruiting and hiring practices, see the articles in the Hiring Your Workers section of the Toolkit Small Business Guide.

Don't be tempted to "buy" an employee by exceeding your predetermined rate range. Mickey Mantle didn't get paid a huge salary until he hit his first 50 home runs a season. Put the person up to bat. If he takes the job and excels, he'll be well worth any raise you give him. But if he's not a star, you don't need to pay him a premium unless and until he earns it.

Fringe benefits are a critical component of employee compensation. Health and life insurance, retirement plans and paid time off form the core of a fringe benefit package. Highly paid employees will place great value on having a wealth-building, tax-favored retirement plan, while lower paid employees will more highly value a health plan that protects their entire family. When recruiting, be sure to stress the right benefit to meet the needs of the prospective employee.

Even if employees are required to defray the growing expense of health plans, it's still a bargain for them as the group rates afforded an employer more than offset what employees would have to pay as individuals for the same protection.

Many firms that rely on large numbers of part-time workers are successfully recruiting and retaining people by offering health coverage, even to low hourly wage employees. The cost of recruiting and training part-time employees is greatly reduced when turnover is kept to a minimum. Offering health coverage to such employees ensures more stability in the work force. Responsible people want health care protection, and you no doubt want to hire responsible people, so you might consider offering this benefit when recruiting for part-time staff.

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