How To Determine An
Employee’s Salary
In many instances, it is more difficult knowing how much to pay an employee than pricing your company’s services or products. There are few rules on how to make the best decision. Salaries rise and fall depending on industry conventions, seniority, geography and the job market. You must set a salary high enough to attract qualified applicants but not so high that it eats into your survival or profits. You invest in training, loyalty and productivity and you hope to gain from the employee now and into the future. Yet, it can be a risky business.
How do you figure how much the job is worth?
This guide will help you benchmark salaries and figure out how much to pay.
Review your own pay practices — Don’t wait until a candidate comes up with an offer. Do some research beforehand. The biggest mistake a small business owner can make is to react to what someone wants before they know what they can afford, or what the job is worth. You will need to keep the salary of a new employee in line with what your pay current employees. Do a budget and check how much you spent on payroll the past year. You should also balance your company’s payroll against the marketplace.
Clearly define the job — You need a clear cut job description and researching a job’s going rate will help. The job title is not enough. You can get hurt if you compare job titles as they can be totally out of whack with salaries. Write a job description as it can be used as your point of comparison for the marketplace. Compare the core functions by matching it to others.
Track the competition — Try and discover what the going competitive rate if for a similar job and track it.
Set the salary range — Experts suggest you set parameters for the job once you have an idea of the competitive rate. There are conflicting opinions about the best time to mention the salary range to the applicant. Some suggest asking how much he or he earned at the last job and others suggest mentioning the salary range as a screening device during the first interview. Others think salary should be the last thing mentioned because it’s better getting to know the applicant’s qualifications and skills first. Bottom line — it depends on what feels right.
Bundle pay and perks — Jobs are rarely only about the money, although that might be what the candidates mention first. Benefits and quality of life perks go a long way toward attracting qualified individuals and enriching compensation offers. It’s less expensive to outbid competitors with contributions to health care insurance plans, funds for retirement and deferred tax saving plans shrinking. Flextime and other such options should be taken into consideration too. Some employees might choose more time over more money depending on their family and personal situation.
Budget for the future — Think ahead regardless of how you structure the salary. Take pay raises into consideration and what might happen a year down the road. If you hire at the top of the pay scale you will have nowhere to go.
Once you have made your decision put the offer in writing. Details and terms including start date, pay package, benefits, vacation and more must be described in you offer letter. Written communication will avoid confusion and any disagreements that might crop up.
