How Much Should You Pay Your Employees?

Business is good, and the time has arrived to determine what your small business can afford to pay employees.

How much you pay will influence  employee productivity, as well as determine the effectiveness of limiting expenses. If you create a lower than industry average pay scale, you can expect employee recruitment difficulties. On the other hand, if you set the pay scale too high, you may have implemented a pay structure that undermines other cost control measures.

So, how much should you pay your employees? The answer comes down to doing your homework before you offer qualified candidates a job.

State Minimum Wage

The minimum wage is your starting point when determining wages. Although the federal mandated minimum wage sets the standard, you have to consider the minimum wage set by your state to get an accurate assessment of how much you should pay your employees. Recently passed legislation in states such as New York and California have created minimum wages as high as $15. The minimum wage often represents the barometer for how much you should pay your employees.

Research, Research, Research

Avoid producing monthly income statements that land in the red by taking the time to write detailed job descriptions for each position and then research what competitors pay for the same roles. Online recruitment sites provide ample research information that includes similar duties and professional qualifications. Professional associations also provide information on what people in your field earn every year.

Employee Pay Resources

You have several online resources that help you set an affordable and employee recruitment-friendly wage scale. Let’s look at a few of the resources.

Employer Surveys

Several wage and benefits institutes present employer surveys online that include information about what employees earn in positions similar to the ones in your company. These surveys give you a clear indication as to whether your wage scale falls within the industry pay norm. Some of the surveys require a subscription fee, but the small amount of money paid is more than worth the cost of turning away qualified job candidates because you’re offering lower than average wages.

U.S. Bureau of Labor Statistics

The U.S. Bureau of Labor Statistics provides accurate information on the job market. This great online resource presents salary information for thousands of occupations, ranging from plumbing jobs to landscaping careers. The Department of Labor updates salary information numerous times during the year to account for wage changes. You would not pay anything to get information from this valuable resource.

Other Research Resources

Wage websites such as and provide up to date salary information for most private sector careers. Make sure to check the last time the databases uploaded fresh information to ensure you have the latest wage numbers to compare for structuring your employee pay scale.

Cost of Living

Let’s assume you have an open entry-level electrician position available in Boston, Massachusetts. Do you set a salary that is identical to the salary of an entry-level electrician that works in Boise, Idaho? Of course not, because the cost of living in Boston exceeds what it costs to live in Boise.

How much you should pay your employees depends partly on the cost of living index of where you operate your business. Food, housing, and insurance costs play a significant role in determining what you pay your employees.

How Much Do You Value Talent?

You could decide to go on the cheap and hire a recent college graduate to fill an open position. However, how much would you lose by forgoing skills and experience in an attempt to save a little bit of money? The answer lies in your profit and loss statement at the end of the year, when you realize the green, recent college graduate cost you multiple clients.

You can put a price on professional credentials and experience by assigning salaries that reward your best employees and ensure that you lower costly employee turnover.

READ MORE: Learn how to build a business where employees want to work

Tenure Matters

Employee turnover costs money. Think about recruitment, development, and retention costs associated with bringing just one new employee to the team.

How much you pay your employees should include automatic pay raises for tenure. Considered in the same light as the cost of living adjustments, tenure pay increases keep talented employees motivated to maintain a high level of productivity. You can set the pay increases over whatever period that you deem appropriate.



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