So far, you have already set up your business goals, mission, and vision, and now it is high time to ask yourself “How much should I pay my employees?”. It should be a burning question if you have not hired a human resources manager or have not outsourced your human resources.
To not have an answer is out of the question since salary is one of the top factors for your candidates. According to Glassdoor research, for 67% of employees, pay is at the top of their priorities when choosing a company.
If you value top talent and strive to ensure higher retention rates at your company, you need to create an environment of growth. There are several tips to consider when deciding how much you should pay employees.
Tip 1. Create a budget for salaries
Before you get down to hiring, think about allocating a budget for total employee salaries. You can start by determining the percentage of your business revenue that should go to the salary fund. Remember, that salary is probably the most considerable expense, so by managing the budget upfront, you will have the money to pay your employees on time, and offer raises when needed.
But what percent of the revenue should you allocate to salaries? It depends on various factors like the industry and country you run your business in.
Salaries for technical hiring vary significantly from those in accounting or finance. And in more developed countries with high GDP, salaries drastically differ from third world countries.
Besides industry and country, such factors as age and seniority level of your employees can have a massive impact on your salary budget.
Moreover, when creating the budget for your employee salaries, you should also consider taxes, benefits, raises, overtime, and paid annual leaves. Overall you will end up spending somewhere between 40%-80% of your revenue on salaries.
Tip 2: Don’t forget about employee benefits
Fringe benefits and other kinds of reimbursements will increase your salary budget. This is because the fringe benefits you offer have an impact on your employee motivation. Offering employee benefits and perks increases employee satisfaction, which in turn brings you more revenue. Since your business depends on the performance of your employees, you can improve your revenue by working on your employee motivation in the first place
If you think of employee salaries as an investment, not an expense for your business, you will see the results. Know your industry and examine benefit expectations, as well as, your employee demographics in order to provide them with relevant benefits and reimbursement. If you’re offering great benefits and perks, you will attract the top employees on the market.
Tip 3: Show an individual approach to your employees
As soon as you have your budget for employee salary, you can start breaking down your budget into individual pay. All the fringe benefits are provided equally for all your team. However, the personal compensation of an employee is different.
Here you can ask again, ‘’how much should I pay my employees? “ There are several factors to consider here:
1. The Role
Start by writing a comprehensive and detailed job description. Make sure to include all core duties and the required skills in the job description. You may need to have as many details as possible for your applicants to understand it fully.
When it comes to job titles, make sure to choose a relevant one as your applicants will be comparing your job description to other companies. If you want to have an appropriate job description with a corresponding title, spend enough time researching the market.
2. Average Pay
Average pay is the next factor that helps you decide on employee salary.
The market research also applies to the range of salaries. There are various methods to find out the average pay in your target market. Refer to the data from The Bureau of Labor or such web platforms as Glassdoor, PayScale, and Linkedin.
You can also search the keywords in your job description. For example, find IT jobs that other companies announce and try to look for relevant information on their salary. You can also search on freelance platforms to know the rates for skills like data research or software development.
3. Geographic Location
The third factor to consider when determining employee salary is geographic location. The average pay for the same job will drastically vary from region to region. It depends on the cost of living and the density of the population. You should also consider the level of education and the competitiveness of the workforce.
4. Employee Expectations
The last factor is the salary expectation of your applicant. Always keep in mind that applicants will bring their salary expectations to the table. Here you can set up a range of salaries for a specific role so that you will have the opportunity to negotiate the payment with your applicant.