How Much Should I Pay My Employees? A Guide on Setting Salaries

Are you asking yourself the question: how much should I pay my employees? If yes, you can check out our guide here on how to determine salaries.

There are over 30 million small businesses in operation, and they make up over 99% of all organizations in the United States. While small businesses are vital to the American economy, often, the people running them aren’t trained, HR professionals, or economists.

They’re usually regular people who have an idea they’re trying to turn a profit with.

While that pursuit is a noble one, inexperience when it comes to things like payroll leaves many small business owners asking questions like, “How much should I pay my employees?”

As with most business questions, the answer to employee pay varies based on aspects that are unique to your operation. Here are four things you should keep in mind when coming up with salary figures.

1- Consider Your Revenue

Your payroll as a whole should be derived from the amount of revenue your company brings in. Naturally, businesses wonder what that perfect payroll percentage is.

We’ll tell you now that there’s no hard answer to that question as the weight of payroll expenses vary widely depending on the industry you operate in. What’s important is that you come up with a percentage that, through research, you’ve found is in line with what similar businesses in your field offer.

As an example, if businesses in your industry spend ~20% of their revenue on payroll and you make $200,000 per year, you should be looking at spending $40,000 or less on payroll (this number should encompass all of your labor costs).

2- Understand the Pay Range of Your Job

Now that you know the upper limit answer to how much should I pay my employee’s question, further refine that number by looking over job listings that are similar to yours and note what they’re offering. You can find job listings on several sites including Monster, Indeed, and Google.

By understanding what your competition is offering for similar work, you can assess what fair base compensation might look like.

3- Keep Benefits in Mind

As you put together a salary, keep in mind that fringe benefits like healthcare, life insurance, and more are likely to cost about 30% on top of whatever base salary number you’ve come up with. Knowing that you may want to reduce the base salary you’re considering to create a more holistic (yet still fair) compensation offer.

4- Adhere to Labor Laws

While most people reading this post are likely putting together salary packages that are more than what labor laws require, be aware that there are lower limits to what you can offer for compensation.

If you plan to find a fillable pay stub free PDF and put in wages that are below $7.25 per hour for your employees, think again. All wage offerings must meet or exceed what the federal and state you operate in mandates so keep those numbers in mind during your compensation brainstorms.

How Much Should I Pay My Employees? It’s Largely Dictated by the Market

If there’s one key takeaway we’d like to leave you with when it comes to our how much should I pay my employee question, it’s that the market largely dictates what you can and can’t offer. Do your research and put together a salary that’s in line with market norms. If you do that, you’ll attract competent labor and stay in compliance with the law.

For more tips on work and business, browse additional write-ups on our blog!

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