How to structure a fair salary scale for your employees

Deciding on how much you want to pay a new recruit can be difficult and stressful, especially if it’s for a new job role rather than a straightforward replacement.

It’s essential for companies to be competitive in the salaries and wages they offer their employees, taking into account both the job specifications and market data.

Without a fair and competitive pay structure, you risk hiring unsuitable candidates, or losing talented people. Learn more about how to structure a fair salary scale for your employees.

Check competitor salaries

A good first step is to conduct some research in order to find out what other companies are paying their employees who are working in a similar role.

A good place to start is to use the internet to find other similar listings to. yours, so that you can compare your job description and intended salary against others

There are other helpful online resources that show salary information too, such as Payscale and Glass Door, which provide information on what other companies, including competitors, are paying for similar positions.

Consider the cost of living

It’s extremely important to consider the implications of the cost of living in the area where your company is based. The cost of living in London, for example, is considerably more than that in Newport, Wales. When deciding a fair salary, take into account the cost of buying or renting a house, fuel, and other living costs.

This factor might also impact on the kind of employment you wish to offer. For example, if the job allows, it might make financial sense to hire an employee who can work remotely from home in another part of the country.

In this case you can advertise the job in an area with lower living costs, and consequently offer a lower – yet still attractive – salary than you would in a place like London.

Decide what the job is worth to you

One of the fairest ways to determine a salary is to think about what the job is worth to you. Ask yourself questions like:

  • Can these tasks be absorbed within other roles?
  • Can I do this job myself?
  • Does it require any special skills or experience?
  • Could the company still thrive without this additional member of staff?

These types of questions will allow you to understand the value of the role, and therefore the worth of the person who will be brought onboard to do it.

If you decide that the company cannot continue to prosper without someone coming in to carry out these tasks, you may decide to offer a more generous salary.

On the other hand, if you think it might be possible to comfortably divide everything in the job description among existing staff, it might be worth trying this before paying out an additional salary.

Determine your upper and lower salary limits

Using all the information you have collated so far, your next course of action is to decide upon your upper and lower limits. For the upper limit, decide the maximum you want, and can afford, to spend on an additional member of staff.

The lower amount can be more difficult, because of course from a financial perspective the lower the salary the better (for you). It’s important to be smart about this, though, because offering too low of a salary can have negative consequences.

Firstly, you are likely to attract unskilled applicants, rather than people with relevant experience and knowledge. Secondly, if you do manage to hire your desired talent on a low salary, they are likely to leave within a short space of time when they realise that they could secure a similar position elsewhere with a more generous salary.

When considering your potential salary bracket, it’s also important to leave room for negotiation. Your upper limit should be in place to offer only to the very best applicant – someone with all the desired knowledge, experience, and qualifications.

This should be reserved for someone who you can only secure at a competitive rate, and would hate to pass up employing and see take a job with a competitor.

Remember that applicants could well be intending to ask for a higher salary, and might ask for more than you have advertised. While salary negotiation is no-one’s favourite part of hiring new talent, it should be anticipated and properly prepared for.

When deciding on a salary, it’s also worth bearing in mind the experience of this boss, who put all his staff on a minimum of $70,000. While his business struggled in the short term, this move has helped it to thrive in the five years since:

“Since the announcement, the amount of money that Gravity Payments processes has tripled. The belief is that – now they are not preoccupied with the problem of how to make ends meet – the employees are more focused on their jobs, and happier because they work for a company that recognises their value.”

When to update staff salaries

Even if you’re not in the process of recruiting, you need to have a process in place to regularly update compensation practices – and increase salaries.

The cost of living in the UK continuously increases at the rate of inflation. According to the Office for National Statistics in 2020 there is an inflation rate of 1.8%. Employers often use this as a basis to determine if and when they should increase staff salaries. 

While you might decide that it’s not necessary to increase salaries at this rate every year, it’s important to keep inflation costs in mind – otherwise your employees effectively become poorer every years.

And you could find your best employees looking for fairer compensation at companies who pay more.

Pay a fair salary – and run a happy business

Deciding on salaries can be one of the biggest problems for the payroll department. But the best way to keep on top of this is to annually conduct research into what other employers are paying staff in the same position, and make sure your salaries are competitive.

Offering a fair salary is absolutely vital for any business that wants to attract (and keep) the right talent that will enable the company to thrive.

Paying low salaries will not only lead to employees seeking alternative job offers, but it’s also likely to mean that staff either don’t have the skills to deliver what you want them to in their role, or aren’t prepared to go yet xtra mile for you when needed.

While business owners, of course, need to give thorough consideration to the financial impact of paying a higher salary, it should be possible to determine if the return on your investment will eventually lead to increased profit and positive company growth – AND a happy and fairly paid workforce.

Matt Bragg is a Director of FMP Global, one of the world’s leading suppliers of UK and International managed payroll for SMEs. He’s also a commentator on HR and payroll, and a thought leader on digital working and employee engagement.

Photo by Christina