Determining Employee Pay

One of the most difficult decisions when you’re setting up a business is determining employee pay. It can be daunting to project the profits of your endeavor and balance your expectations with those of the people working for you. Turning down a request for a raise, or having to tell an employee that you can’t afford to pay him the wage he probably deserves, are two of the trickiest aspects of running a small business. Whether you’re choosing to employ people on salary or as contract workers will determine what type of business yours is—both for tax purposes and in the mind of your workers. So how does one determine what her employees should be paid? “The general rule of thumb,” according to the Small Business Administration (SBA), “is to pay a salary based on experience, location and the available talent pool.”

Determining Employee PayThis seems like obvious advice, but drawing in the right people is the single most important factor in figuring out what to pay your employees. “When you’re looking at pricing a job there is often a wide range of jobs that have the same title. So you need to be really specific about the range of duties and responsibilities of the job,” reports the SBA. One way to do this is to ask for expected salary or salary requirements in your job description, so you can better gauge what highly experienced workers have been paid for a similar position in the past. Then you can determine if he or she is worth that money when compared with your projected profit. Remember that highly paid employees, commensurate with experience, often can bring in more profit to your business than a less-experienced worker.

If you’re unsure about turning the question back on potential employees, another alternative is to set a salary range that seems reasonable. You can then negotiate with potential workers in the interview process. This can also help to set realistic expectations for your employee by allowing him or her to apply for the job with some salary parameters.

To determine what you should pay your employees, the most valuable advice you can get is from your business attorney. Don’t try to set up a business alone. If you or someone you know has business law needs, contact The Gierach Law Firm today.