When you’re managing a small business, one of the first things you probably ask yourself is, how will you pay your employees? Of course, the answer will depend on how many employees you take on, their main tasks and orders, how long you plan to keep them employed, and what type of business you’re running. There are many subjective factors to take into account when deciding what the ‘right’ salary is for employees.
However, there are universal truths and rubrics regarding the right salary, with some variations depending on where you live. The pay is one of the significant factors employees take into consideration when choosing a job or deciding whether to stay at the company, so you definitely can’t take your employees’ salary for granted.
Here are four things to consider when budgeting for your employees’ salaries.
Your Overall Budget
Your employees’ salaries will most likely come from your revenue if you own a small business. Unfortunately, there’s no clear cut way to determine how much of your profit should go into your employees’ salaries. It depends on your type of business, your employees’ workload, and many other subjective factors. But here are some general guidelines to keep in mind when managing the payroll.
Think about how much your business makes daily or monthly and set aside a fixed amount for your employees’ salaries. You should also take into consideration whether you’re paying your employees by the hour or a fixed amount every month regardless of hours spent working. This will significantly affect how much you’re paying them, as hourly rates can fluctuate and make changes to their monthly salary. On the other hand, having a fixed amount is seen as a more stable choice. Once you decide the pay frequency, you can tap into payroll processing services to streamline accounting procedures.
You should also take into consideration any fringe benefits you offer and be prepared to subtract that from your revenue as well. Fringe benefits you should consider are overtime, paid time off, incentives and maternity or paternity leave. In addition to that, you should also consider healthcare and retirement benefits. Offering these benefits is another thing that plenty of employees look for in a job so if you’re looking for employee retention, make sure to take this into account.
If you’re apprehensive about how much your employees’ salaries take out of your business revenue, remember that your employees are essentially investments. You’re not paying them to do nothing. You expect a return on that investment, and they, in turn, will deliver the service you expect from them—it’s an exchange. If you find the right talent, you can expect a high return on investment (ROI) with a high salary.
If you can’t afford to give them a high salary, be transparent about it and make sure they’re entirely aware of it during hiring. The worst thing you can do is lie about compensation. There’s no shame in admitting how much you can actually afford, as long as you tell your employees about it, get their willing consent, and adjust the workload and expectations accordingly.
Average Pay Rate
So how much should you actually pay your employees? Do your research and look up the average pay rates of employees in the kind of work or business you’re in. Finding the average pay rate can help to give you a general idea of how much your employees expect to receive and what you should pay them. Of course, like most things, the exact amount will vary, but it’s best to stay as close to the average as possible, considering your overall budget and your employees’ workload.
Different states have different laws about the amount of labor employees are expected to do every day, the time they spend on work and how much they should be compensated for it. For example, exempt employees and non-exempt employees are both entitled to different amounts of payment. Exempt employees are ‘exempted’ from overtime pay, so they won’t be paid extra for working beyond office hours, while non-exempt employees are entitled to overtime pay and should be paid an hourly wage. Differentiating between the two can make all the difference when coming up with a set salary.
The minimum wage also varies depending on the state. That is, the minimum wage in one area can be high in another. Do your research and find out the labor laws in your area to stay within it and practice fairness among your business and your employees.
An Employee’s Output and Performance
Last but not least, you should consider your employees’ overall performance. Do they always put out outstanding work? Did they start out strong but are lagging behind? Are they gradually showing significant improvement from when they started? Remember to see employees as an investment. Ideally, it would be best to get a high ROI from good employees who turn in high-quality work and customer service in exchange for a high-paying salary.
It would help if you considered how much work you’re giving them, how labor intensive it is on a day-to-day basis, and what affects your employees’ performance. A bigger workload and more labor intensive tasks should always equal more pay. Inversely, a lighter workload with lighter tasks equal a smaller salary. Either way, it’s important that your employees get duly compensated for the hard work they undoubtedly put in.
While there’s no clear-cut way to determine how much you should really pay your employees, you can always take a look at these guidelines and statistics. Also, consider what employees want from a job to help you determine how much proper compensation is. Again, your employees are an investment, just as your business is an investment of time and labor for them. So make sure you get the most out of your money.