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Determining how much to pay your employees

Determining how much to pay your employee is all about finding the right equilibrium

It has been proven that decent pay appeals to and helps retain talents in companies. How much you pay your employees is a way for the company to show how much it cherishes its contributions. However, as the boss, it would be unfavorable to allocate too much capital to the salaries of your employees.

Hence, what is the solution? You have to include the following factors to decide on an employee’s pay:

  • What the employee is demanding for
  • How are their contributions rated in the market
  • What can they contribute to the growth of the company (present and future)
  • How much you are able to offer

When calculating the magic number, you should also consider if part-time or contractual employees are able to succeed at the job. Hiring part-timers or contract workers means lower levels of responsibility on your end and there is an abundant supply of such workers who prefer this arrangement with fewer restrictions. It also helps to create your own pay stubs, which will help you and your employees see how their salary is determined.

Here is how you can calculate the salary you should pay your workers in six steps.

  1. Publish a precise job description

A precise job description will make the determination of salary simpler on your end. Firstly, ensure that the job title indicates clearly what candidates can expect from their jobs and the deliverables they have to work on. However, you might also want to keep it as general as possible so that comparisons to similar jobs can be made.

Record down all the assignments and commitments required of your employee. You can also indicate the proportion of time you would want them to allocate to each assignment. When it comes to the abilities and soft skills required for the job, you would need to do some market research.

  1. Research on the latest pay data

Research on how other similar companies are offering for a similar role you are hiring. However, one word of caution is that such data are regularly updated. The market might need more of some capabilities at any point in time, resulting in higher pay demands of candidates. Hence, it is essential to obtain data that is recent and relevant.

  1. Know how much your prospective worker is asking for

Getting to know more about your candidates includes asking for their salary expectations. They are highly likely to already have an ideal range of pay they would like to aim for. Utilize the interview to find out their ideal range and determine soon if you would be able to afford their ideal range.

Below are some pointers you would like to ask regarding their pay expectations:

  • Pay they are getting for their existing job: how is their pay structure like? Are they collecting a fixed pay, commission, or salary?
  • Supplementary compensations: what is their existing job offering them? For example, do they get extra leave, the choice to telecommute, or the freedom that allows them to leave work before time to settle their family matters?
  • Why do they want this job: what are their expectations for this job? Would they like to seek a higher ranking function and boost their income? Are they seeking business collaborations? What appeals to them more – your firm’s reputation or principles?

Your candidates’ replies would be useful to find out what pay they would expect to receive and enable you to propose a practical amount.

  1. Decide how much your business is able to pay

After finding out what pay your prospective employee would like to receive, you have to now determine if your company is able to afford it. Get a calculator and we shall go through this list of questions to find out if you can pay the amount they are asking for:

  • What is the value your new worker can contribute to your company’s revenue in one year? What is the return on this investment?
  • How much time can be salvaged from this new employment? Time saved equates to additional chances to expand the business.
  • Calculate the amount of capital you would like to return to the company’s growth annually. Ensure that the amount of money is not touched for your workers’ salaries, taxes, and compensations.
  1. Propose the pay you have in mind to your prospective worker

Upon reaching a conclusion on how much you are willing and able to pay your new worker, you have to now consider what other benefits you will add to the plate. You can consider the following:

  • Propose a straight salary

This is the most straightforward and simplest proposal to make, but you have to know that candidates are expecting to receive a complete set so this could turn off some candidates.

  • Include a combination of stocks, wages, and bonuses

Proposing a combination of shares, pay, and bonus that is related to work performance and KPI is another choice for the right person for this role. A set with shares and work accomplishments-related bonuses would be less fiscally tight. It can also be the tie-breaker for workers who are driven by targets and benefits.

  • Offer a more relaxed arrangement for your workplace

Near to one-third of workers say they prefer some benefits to salary increments, so it shows that money does not resolve everything. Some do not feel that higher pay can be comparable to vacations or shorter working hours so that they can spend more time with their loved ones or to pursue further studies.

  1. Ensure accountability of your employee data

Ensure that the employment contract is signed and finalized before your new employee reports to work. Now you are legally liable to ensure that your business records everything responsibly. Research on the type of details you would need to collate and the duration of retaining such information by reading up the authorities’ tax website or seek advice from your consultant.

You could utilize the following as a checklist:

For all employees, ensure you have the following

  • Name, address, contact number and tax information
  • A duplicate of the employment contract
  • The official first day of work
  • Salary amount and disbursement period (per week or per month)
  • Paid by the hour or by wages
  • Any payroll subtractions
  • Additional compensations
  • Remaining annual leave

For sensitive and important data collected, always remember to keep it safe and support it in cases of technological glitches such as computer or server crashes.

Do the best that you can

Determining exactly how much to offer for the salary of your new hire is never a simple problem to resolve. Ensure you find out the necessary information and you will be one step closer to finding the right fit for your new role.

Categories: BusinessNews