How much should I pay my employees?

You’ve got the right person lined up – good skills, great attitude and experience that hits the mark. You want to hire them. All you need to decide now is: how much should I pay my employee? The answer depends on a lot of factors.

Deciding on pay is a balancing act

It's a fact that good wages attract and keep good talent. It shows you value your employees and boosts their self-worth. Yet, as a business owner, you don’t want to overspend on pay.

So what’s the right number? Working it out is a balancing act. You have to weigh up:

  • what a prospective employee wants
  • what you can afford to pay

During this exercise, you should also ask if you can cover the role with part-time or casual support. It’s less of a commitment for your business and there are often candidates looking for that sort of flexibility.

But if you decide you need a full-time employee, here are some pointers on figuring out how much to pay them.

Work out what to pay your employees in six steps

1. Write an accurate job description

An accurate job description will make it easier to set the salary. Start with the title. Make sure it accurately reflects the nature of the job and the duties you want your employee to perform. But make it generic enough so it can be compared to a similar job in a similar industry.

List the duties and responsibilities you want your employee to fulfil. Show what percentage of time you expect them to spend on each task. Once you’ve summed up the skills and work relationships that are relevant to the role, you’ll have what you need for step two – gathering market data.

2. Find out the going rate

What you pay your staff will vary depending on their position and the level of experience. Find out what other retail businesses are paying.

There are several good places to go looking.

Start online
Search websites like PayScale to find out the market rates for different jobs in your location. It’ll give you a good snapshot for free, or you can pay for a detailed report.

Talk to locals
The web is a good starting point for general data, but there’s no substitute for talking to people. Get in touch with other retail business owners to find out how they arrived at their number.

It also helps to speak with people whose job description matches the vacancy you have. If you’re hiring a deputy manager, for example, chat with deputy managers in your network.

Comply with the law
If you plan to employ someone on the minimum wage or offer overtime, you’ll need to check the law to make sure you’re compliant. There’ll be other legal issues you need to understand so talk to your advisor and check out your local government’s resources on hiring an employee.

Use this checklist to guide you. Check out:

  • minimum wage obligations

  • legal requirements around the day, frequency, and method of payment

  • what you’ll have to do if you want to change the day or frequency of payment

  • when to pay annual holiday leave

  • your record-keeping obligations

  • how to make employer deductions for things like tax, pension scheme and child support

3. Find out a candidate’s pay expectations

When asking “how much should I pay my employees”, don’t forget that your candidates probably have an opinion. Use the interview process to get a sense of their expectations and decide early if you can afford them.

Ask about:

  • current pay – are they paid a fixed salary, commission or wages?

  • additional benefits – what’s their current situation? For example, do they receive additional leave, or the flexibility to leave early to meet childcare commitments?

  • reasons for applying – what are they looking for?

Answers to these questions will give you valuable insight into your candidate’s pay expectations and help you make a realistic offer.

4. Calculate what you can afford

You’ve gathered data from the market. You’ve checked the law and sounded out your candidate. Now it’s time to look inside your business and ask not just “what should I pay my employees?” but “what can I afford?” Grab a calculator and run through the following questions.

  • How much revenue is your new employee likely to help generate in a year? What’s the return on your investment?

  • How much time will they save you? This has a value as you’ll have more opportunity to grow the business.

  • Where does the role sit in your business’s hierarchy? Could the offer you make affect the expectations of other staff?

  • In a year or two – when it’s time for a raise – will you be prepared for that?

  • Remember to work out how much money you want to put back into the business every year. Make sure you don’t eat into that money when deciding how much to spend on employee wages, taxes and benefits.

Talk to your lawyer to make sure your offer stacks up (and isn’t breaking any laws). And be prepared to negotiate when the time comes – particularly with senior employees.

5. Make an offer

Once you’ve decided how much to pay your employee, you need to ask what else will go into the offer, if anything. Here are some options.

Consider offering commission or bonuses
Offering sales commission (tied to specific performance targets) is another option for the right candidate. Performance bonuses can make a big difference to people who are motivated by goal-setting and rewards.

Provide flexibility in the workplace
If you’re running a bricks and mortar retail business, chances are you’ll be open on weekends to make sure you’re making the most of that foot traffic. Consider the different shift patterns staff will have to work so you don’t have the same person working every Saturday. And be mindful that you might have to accommodate requests for shift changes so people can fit in time off to study or look after family.

Be competitive
Whatever you offer, make sure it’s competitive. It’ll show you’re serious about making the new hire a part of your team.

Remember that staff turnover can grow when employees think they’re underpaid. You’re better off spending a little more and keeping your staff than constantly hiring and training new people. Besides, word gets out – you’ll have trouble attracting new people if you have a reputation for low pay.

6. Keep good records

An employment agreement should be completed before your new hire starts and you’re legally obliged to keep good records. Find out the information you need to collect and how long you need to keep it by checking the government’s tax website or talking to your advisor.

Use this checklist as a rough guide.

For each employee, record:

  • name, address, phone number and tax details

  • a copy of the employment agreement

  • start date with the company

  • pay rate and pay period (weekly or monthly)

  • if paid hourly or by salary

  • any payroll deductions

  • any benefits

  • annual leave balance

And, remember, this is sensitive information so:

  • keep it secure

  • back it up so it’s not lost if a computer or server crashes

Put your best foot forward

“How much should I pay my employees?” isn’t an easy question to answer. Take the time to do your research, however, and the rewards can be great. You’ll get the right person at the right price. Just be prepared to put your best foot forward when you make your offer. It’ll go a long way towards attracting and retaining the right talent.

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