How to set employee salaries in a small business

Deciding how much to pay for a particular role can be tricky.  Your goal has to be to find the best candidate possible and to pay them fairly.  However, there’s no point in paying them more than the job is worth to your business.

An employee’s salary is the same as any other business expense in that it’s an investment on which you want to see a return – in time, money, efficiency, etc.  If it’s a sales role, the salary you pay may be dependent upon the likely income they will bring into the company.  However an admin role isn’t going to bring in any money but may well save you money by increasing efficiencies and an IT role might save you the time, effort and stress of doing it yourself!

Salaries should be consistent across the business.  The most common methods for SME’s to decide on salary levels is as follows:

What is the going rate?

What are other businesses of a similar size and in your industry and location paying for similar roles.  There’s no point in comparing an office manager role in a large organisation of 6,000 employees for example with an office manager role in a small company with perhaps 20 employees.  Information can be obtained from recruitment agencies, job boards, Chamber of Commerce, etc.

Skill-based pay

Determine levels of pay in relation to skill required rather than by job title.  Create a matrix of skills required to do a particular job and set your pay level at a rate to cover the base skills required for the role, and establish incremental increases for each additional skills learnt enabling the employee to increase their pay as they increase their skills.

Banding

Group together related jobs into a band.  For example your administrative assistant, receptionist and telephonist could all be in one band with an assigned pay range through which they can progress with service.

Performance-based pay

In some sales roles, you may well want to consider paying a basic salary (always ensuring that the employee is at least earning the national minimum wage) and then pay a commission or bonus dependent upon their performance.

Where an individual fits into a pay scale will vary depending on their qualifications, skills, experience, industry experience, etc.  You could therefore have two people in the same role on different pay rates with someone who is completely new to the role on a lower salary band than someone who has spent ten years doing a similar role in your industry.

Angela Rhodes

Angela Rhodes

Angela is the founder of HR consultancy and HR franchise, which guides small and medium businesses - and a number of major UK celebrities - through the maze of employment legislation. With over 28 years' experience in HR management, Angela is one of the most respected and widely-referred professional HR consultants in the UK, and no client who has followed her advice has ever been successfully taken to an employment tribunal or fallen foul of an HR-related legal minefield.