No matter your business your employment costs are going to make up a significant percentage of your total expenses. It can be tempting to look at salaries as a place to cut costs and increase your bottom line. Is that a wise idea? It can be difficult answering the question of how much should I pay my employees? Here is our guide to help you make this important decision.
How Much Should I Pay My Employees?
How much should I pay my employees? The short answer is to pay them well. If don’t think you can afford to pay your employees good salaries we recommend exploring ways to pay them well. Paying your employees good salaries you will likely decrease your employment costs over time and will boost your chances of business success.
Paying above market rate for an employee may seem daunting however like all business expenses it is an investment. And it is one of the most important ones you will make. You are trusting the future of your business with them.
Paying better salaries will save you money in the long run. Offering salaries above the market rate will attract better employees. These people are more talented, engaged, and motivated. This will improve your workplace culture and teamwork.
Why this works is because the employees you pay a little above average for will be significantly better than average employees. This will also reduce employee turnover which can cost from 16-260% of the annual salary for that position.
Determining How Much To Pay Your Employees
First, you will want to have a good sense of the employment market in your industry. Industry associations or trade publications often conduct salary surveys. There are also some commercial websites that offer industry salary insights.
You can also research the salary ranges being offered by other companies. You can get some great information networking with other businesses in your industry. Additionally, you can ask your employees and candidates what their salary history and expectations are.
Once you have a sense of the average salary for roles in your industry you can decide how much you want to offer candidates.
Pay For The Person, Not The Position
The salary you pay your employee is an investment in your business. If you come across a really high-quality candidate consider how this person can contribute to the overall success of your business, rather than the job title. This is especially important for smaller companies where employees are asked to perform multiple tasks across a range of responsibilities and have a greater impact on business success.
Similarly, be flexible when considering your candidate’s experience and education. More experienced and educated candidates expect higher salaries. Do you need an employee with experience at a similar level to your opening, or can you invest in a younger candidate who might be ready to step into greater responsibilities. You can also look out of your industry for candidates who have all the expertise you need but come from a lower-paying industry. This way you get a highly engaged and motivated staff employee rather than someone who is disappointed with their compensation.
Retaining Your Employees
Your job is not done once you hire an employee. How much you pay employees requires on-going management. You will want to regularly, around once per year, review your employee’s performance and salary. If you do not conduct performance reviews employees may not feel like their hard work is being noticed, and will wonder if they have room for growth.
If employees are performing well you will want to offer them pay raises or greater incentives. Simply avoiding talking about salaries with your employees because you do not want to give increases is a sure-fire way to upset your workforce. If you offer your employees too little some may start looking for other opportunities without telling you they are dissatisfied which will cost you more money in the long run.
Paying Employees Is An Investment
Paying employees is unavoidable and you are going to need to answer the question, how much should I pay my employees? Employee wages can seem like a huge expense to your business but that is only the case if you don’t have a great staff team. Consider your employment costs as an investment. Spend a little more to get the best people and you will find you have a talented and dedicated workforce that gives you a great return on that investment. For all your payroll and HR needs, consider outsourcing to The Accfin Group.
