How to Determine How Much to Pay Your Employees
Complying with wage and hour law and doing payroll are vital components of the process of paying your employees. First, however, you must decide what amount to pay them. What other employers in comparable businesses are paying is a good way to determine what an employee's salary or salary range should be.
Deciding how much to pay an employee is an issue that just about every employer struggles with at one time or another. It's often a fine line between paying enough to attract (and retain) the best employees without breaking the bank. It can be particularly tough for small business owners who are quite often operating on tight budgets. So how do you determine what you should pay an employee? You should first make sure that you're in compliance with wage and hour laws. You should then be sure to offer a competitive wage. The best way to find out what a competitive wage is in your area is to find out what others are paying for the same type of work by obtaining salary data.
Getting salary data can be used to determine what competitive pay is for the work you want done. There are also several other reasons you will want to keep on top of market rates:
- Inflation. Inflation causes the buying power of your employees' salary to decrease, when the dollar amount remains the same. Since many employers adjust for inflation each year, maintaining competitive pay may, in fact, require you to adjust every 12 to 18 months.
- Mobility of the workforce. As the educational level of your employees rises, more will change jobs and change employers more frequently. At the lower end of the pay scale, turnover can be high and makes it necessary to keep on top of who's getting paid what in the field where your employees work.
- Credibility. Without wage and salary data, it's impossible to know that you offer pay that is fair in relation to other employers. If your employees begin to feel underpaid, you won't be able to tell them, with confidence, that they're not.
- Threat of unionization. As your business grows and you gain more employees, you need to be aware that some unions have targeted small businesses for organization activity. If your pay is highly competitive, you reduce the likelihood that your workers will consider joining a union.
How do you get your hands on salary data? Small businesses in particular may not have a great deal of time to hire someone to help out, so getting salary information isn't something you'll be able to spend days and weeks doing. There are a number of sources where you can go for quick data:
- the classified ads
- public information
If based on your research you find that you can't possibly even come close to paying a competitive wage without destroying your bottom line, you may want to think about postponing your decision to hire an employee and come up with some creative solutions to your staffing needs, such as hiring family or creating an internship position.
Using the Want Ads for Salary Data
The quickest and easiest way to find out what the going rate is for a particular kind of work is to see what others are offering. To find out in a hurry, check the classified ads in the newspapers or online. See if you can find similar jobs or positions that entail the same kinds of work.
Many classified ads will include an approximate pay range. If you're lucky, they'll state the exact starting salary. If you find that not enough of the ads include a pay range, you can always contact the employer and ask!
Be sure to note things like the duties that the job requires, the geographical area that the job is in, and any benefits that may be offered. If the job's duties are the same as the one you will be offering, that's helpful. If your job's more or less demanding, plan on adjusting pay accordingly.
If the jobs are in your geographical area, you'll have a good basis for comparison. If they are not, then they may not provide as accurate a comparison. The best information will be from jobs in your immediate area because those are the strongest competition.
Networking for Salary Data
In addition to using the classified ads for salary data, there are some other, more informal ways to get data, too. They tend not to be reflective of an entire industry or area, but they can give you a starting point. If you have a relatively common job opening, you can always ask:
- other small business owners
- your local chamber of commerce
- employment agencies or temporary help agencies
- company and trade associations, including local chapters of trade groups that specialize in the applicable industry
- competitors who have a job opening (you may get the information or you may not; try being creative)
- job applicants — they may be willing to tell you how much they were paid in their previous positions
- anyone doing that job — who knows, maybe they can give you some leads on people you can hire!
Public Sources for Salary Data
The Bureau of Labor Statistics has Occupational Compensation Surveys (OCS) for most geographical areas in the United States. The information is broken down by the type of occupation as well as by various levels within that occupation. The advantage of using these surveys is that they reflect data in your geographical area so you can get an idea of what employers in your area are paying for a specific job. The government also has information about benefits and other statistical information related to employment.
Before you use any data from any source, make sure it's up-to-date, was done by a reputable organization, and covers employees like yours. Be particularly careful when using online sources that appear credible but may not be fact-based.
To access these reports on the Internet, go to the Bureau of Labor Statistics site and type in the name of your city or state. These reports are also available from the Bureau of Labor Statistics' regional offices. Prices for individual surveys vary. For price information on a specific survey or to order by phone, call the Government Printing Office at (866) 512-1800.
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