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6 Steps to Determine What to Pay an Employee

As a small business owner responsible for paying your own salary, you are most likely sensitive to the importance of satisfactory pay for a hard day’s work. You know that compensating your employees fairly and competitively is important to a positive and productive work environment, but how do you go about setting a pay scale?

For most small business owners, it’s not simply a matter of starting an employee at minimum wage. According to small business owners surveyed in The Hartford’s 2014 Small Business Success Study, 81 percent pay above minimum wage and 66 percent support an increase in federal minimum wage.

What to pay an employee is generally based on a candidate’s experience, training and past salary. Use these six steps to determine a pay rate for new employees.

1. Write a job description

A job title isn’t enough. There are a wide range of jobs with the same title, and your small business environment likely requires specific talents and entails certain responsibilities. A clear idea of exactly what the position encompasses is necessary for determining pay. List all of the duties of the job, starting with the most important and moving down to less significant tasks.

2. Consider experience and training

Determine the minimum experience and education necessary for the position. If the job calls for prior training, note how many months/years are required. Also consider education. Does the position require an advanced degree or certification? Generally, the more training and education an employee has, the higher the pay.

3. Check out industry rates

Use your job description to compare industry rates. Do an online search on employment sites and compare pay rates of similar job descriptions in your geographic area. Also ask other small business owners what they pay for similar positions. Note the bottom of the pay scale, the top and the average.

4. Factor in benefits and perks

As best you can, determine the value in dollars of any healthcare coverage and retirement plans you offer, as well as opportunities like flextime, working from home, reduced workweeks and the use of company vehicles.

5. Set a salary range

Using all of the facts you’ve gathered regarding the position, determine a payment range. Start with the lowest salary you discovered for the position and offset that figure by the dollar value of benefits you offer. Then define that category with the lowest required education and training. Repeat the process for the next level.

A resulting starting salary pay scale might look like this:

  • $30,000 salary for 1-3 years of experience and no or limited education
  • $35,000 salary for 4-5 years of experience and a degree
  • $42,000 salary for 5+ years of experience and an advanced degree

6. Be flexible

Be willing to tweak your salary range, if necessary. For instance, if you find an employee who made $2,000 more a year than you’re offering, but the candidate looks especially promising, consider matching that pay, if your budget allows.

Offering potential employees a fair wage sets the stage for a happy work environment that’s bound to inspire productivity and encourage creativity.

Next Steps:  Are you looking to manage your employees more effectively but don’t have time to keep up with the latest research and trends in talent management? We’ve got you covered with the weekly Small Biz Ahead Newsletter. Sign up today and start receiving the weekly newsletter chock full of the latest tools and resources to help you run a successful business.

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