Bringing on a new employee and not sure how much you should pay them? Abacus Payroll explains how small businesses can approach employee pay structures.
There are many things to consider when hiring employees, and employee pay is certainly one of the most important considerations.
How much should I pay my employee?
The first issue is to decide how much you should pay for a particular job. A wonderful free online resource available is the annual survey conducted by The US Department of Labor’s Occupational Employment Statistics (OES). The OES survey publishes the average salary or hourly wage based on job function, industry, and geographic region. For example, if you wanted to hire a lawyer for your business in Kansas City, MO, the most recent study suggests a mean, or average, salary of $126,100, or $60.63 per hour.
There is a caveat with this figure, however. The study assumes that all jobs are 40 hours per week, or 2,080 hours per year. Many items like bonuses and overtime pay are not included in that figure. The mean hourly wage is provided in the survey to allow you to easily adjust the salary based on the actual time requirements of the job. Do many attorneys work 40 hours per week? The answer is no – 60 or 70 hours per week is certainly not unusual. Assuming our attorney will work 60 hours per week, we can do some simple math to determine that the average salary is $189,166 (60 hours x 52 weeks x $60.63 per hour). This average amount is a starting point – the quality of the candidate and the number of other candidates available will ultimately drive the final pay rate. For more common jobs like retail and hospitality positions, the simple hourly wage is all that is needed.
Another free resource is Salary.com. It is simple to navigate and find basic compensation information. It’s not as precise or adjustable as the OES survey, but it’s a good way to make sure you are “in the ballpark” for a certain job. This brings us to the second aspect of compensation – how should it be structured?
Should I pay my employee an hourly rate or salary?
Once you have an idea of what employers in your area typically pay for a job, you need to determine if the job should be hourly or salaried. The easiest way to answer this question is to think about what the job is really adding to your business. If the value of the job is time, such as someone operating a cash register for the hours your store is open, then the pay should be hourly. If the job is insight or skill, such as someone developing a new marketing strategy, then the job should be salaried. An easy to understand example is salespeople – the objective of their job is to increase sales, so their pay should increase as sales increase, which is why commissions are typically used instead of hourly wages or a salary. Since sales are tied to commissions, salespeople are clearly motivated to increase sales.
How can hourly or salaried employees be motivated?
Carefully planning your employee pay structure can add tremendous value to a small business by attracting and retaining the best employees. Goals and incentives are an important aspect of an employee’s pay that doesn’t get enough attention. All too often, employers give a token year-end bonus. Sometimes, this bonus is based on how well the company does. However, an individual employee usually has no direct control over how well the company does, so they shouldn’t be rewarded or punished for it. Ideally, you should think about what the individual employee can control to benefit the company. Then you can establish easily understood and measured goals, with rewards tied to these goals. If you understand how an employee’s job helps the company and reward them for something they control, it won’t be long before broad improvements can materialize. Don’t be afraid to get creative – people value things other than money!
If you’d like some help with your employee pay structure, Abacus Payroll can help. Contact us today for a quote on 856-667-6225 or Email us.