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How Much Should I Pay My Employees?

Estimated Read Time: 8 Minutes

JESSICA LAMBERT , 10 May, 2023

Expanding your small business is an exciting time. Perhaps you have decided that it’s time to turn your one-man band into a small-sized company due to increased demand for your products and services – or maybe the time has come to hire additional staff as you push the growth of your SME forward following a tumultuous year.

The hiring process can be both exciting and challenging, as the options available to dedicated worker bees have exploded in recent years. Reliable, hardworking and most importantly, talented applicants, are often hard to come by and when you finally have the right candidate in front of you, the biggest mistake would be losing their interest due to making the wrong offer.

Not only do you need to consider the needs of your potential employee-to-be, but you must also weigh them against the needs of your current workforce. Your business needs to be fair when making any decision regarding pay to its employees, otherwise, you risk rocking the boat and causing discontent amongst your workers.

Being a small business ourselves, Nucleus knows a thing or two about how to approach setting salaries for your staff. If you’re feeling a little overwhelmed by the process, read on to understand how to get it right when paying your talent.

Comply with Legal Restrictions

This is the first and arguably most important step. There is no avoiding the minimum requirement of adhering to the law and if you currently pay your employees minimum wage, it’s vital to note that from April 2021, the rates changed from the year before.

The National Living Wage had a 2.2% rise in April this year, meaning the previous rate of £8.72 will be replaced with a higher figure of £8.91 per hour. This means that almost 2 million of the UK’s lowest-paid workers are to benefit and for full-time workers, that’s an additional £345 per year.

Secondly, since it first came into effect back in 2016, the National Minimum Wage will be wider-reaching, as the threshold was lowered from 25 to 23 years old. The government hope to support the next generation of workers and by raising the age threshold, younger workers are not left behind.

To ensure you are law compliant, use the Gov.co.uk wage calculators for employers.

How Much Money Can They Make Your Business?

When it comes to establishing the right salary for your employees, a factor to consider is how much money can they make your business? It is a careful balancing act between investment and return and as the adage goes – you get what you pay for.

Top workers come at a price and considering that your employees are your most valuable asset, it is worth prioritising this outflow of cash as it will equate to more money made for your business in the long run.

It is easy to determine the salaries for certain employees – sales, for example, are quantifiable and therefore defining the amount you should pay them is usually done with simple math. Consider the revenue they are likely to bring in and measure that against market rates and the potential to earn commission. If your business relies heavily on selling products, providing your sales reps with a salary tied in with a commission structure is likely the best approach.

Your business can take various routes when implementing a commission structure:

– Base plus commission (your employees earn extra on top of their base salary based off each completed sale)

– Salary plus bonus (your employees get an additional bonus if they meet set goals)

– Commission-only (employees earn a percentage of each sale)

Things become a little trickier when it comes to defining the salary for the employees who don’t directly bring in money to your business. Of course, your SME would be unable to function without them, so it is essential that you value the members of staff working behind the scenes as much as the ones on the front-line.

We are talking about your admin staff, business support, IT personnel, HR specialists… you get the gist. The question you must ask is how much would it cost your business to operate without them? By cost, that covers both what they save you in money (because if we are honest, skilled business support can save you thousands if things go to court when mistakes are made) and time – the most priceless commodity of all.

What Can Your Business Realistically Afford to Pay?

You might stumble across the most sensational marketing manager you’ve ever met, but if their monetary value exceeds what your business can actually afford, you will have to continue the search and look at hiring someone with less experience and qualifications.

Your business will no doubt have a scale in mind when interviewing/promoting an individual and the first step is to work out the ceiling amount you’re willing to pay. Most businesses will state a salary range with the top amount slightly less than it is able to afford, which allows space to budge the figure a little higher should the perfect candidate walk through its doors.

Remember though that the aim is to always be fair. You might try to keep the salaries of each member of staff under wraps, but people talk, and word always gets out fast. If your business is overly generous with one employee, that will most likely have a knock-on effect for the rest of your organisation. The end result could mean that the salaries of all staff require a boost to keep the peace and in the worst-case scenario, a legal case for pay discrimination.

A lack of cash reserves should not be the ONLY reason your business does not hire the perfect candidate. As your business grows, its ability to do so successfully heavily relies on its workforce and that is why is it vital to have a strong employee base. Small business loans can enable your business to offer competitive salaries when the right person comes along and they aren’t as terrifying as the media would have you believe. Whether your business uses an invoice finance facility to access money that is otherwise tied up or it uses a simple cash flow loan.

Determine Market Worth, Then Get Competitive

Do your market research before settling on a figure as regardless of how generous your business thinks the offer is, it may fall under what the current market is offering to pay that sort of position.

Equally, if you are hiring for a new role in your company with no previous experience relating directly to that position, you risk being overly generous and paying well above the odds – this could prove to be detrimental however, as the senior roles in your company will, of course, need to be substantially higher in some instances and the snowball effect of overpaying could cost your SME more than it can afford.

You should never make a decision on what to pay an employee without at least consulting recent salary data first. A good place to start is by searching for average salaries on Glassdoor for the position in mind and to make informed pay decisions with confidence, use PayScale as a shortcut to pricing your job vacancy for free.

There are various routes you can explore to get a better idea on what the going rate is for the role in question. Reach out to those doing similar roles in your network or ask friends and family to speak to individuals doing the same job your business is hiring for. If you don’t have anyone in your close network to chat with, doing the rounds with recruiters to determine what they think is a fair and competitive offer is always a great idea and likely something your business won’t regret.

It is certainly worth remembering that paying your employees above-average salaries is not necessarily a bad thing. Paying more than the industry average and your competitors will give your business a competitive edge when it comes to attracting, recruiting and retaining the best talent.

Money Talks, But So Do Perks

Whilst money is the most important part of any job offer, it often isn’t everything and candidates are attracted to a generous package that extends beyond the figure on their payslip.

In fact, a recent report conducted on behalf of Glassdoor found that over a third of people deem perks to be the most important consideration before accepting a job at a company.

Benefits such as working from home, flexible hours, private health insurance and ample amounts of annual leave have the ability to transform an otherwise mediocre salary into an exciting opportunity not to be sniffed at.

Ask the Question

Lastly, once you have conducted your research, spoken with the relevant people and found the ideal person to do the job, the final step is to have a conversation with them to understand their expectations.

All the market research in the world won’t matter if your offer is far from what your candidate expects, especially if they are expecting a pay rise in order to leave a current position.

It is always good practice to ask the applicant what they want, both in terms of pay and potential perks. Given that so many people prioritise perks when searching for the right job, your business has the potential to compete with its bigger counterparts by providing better benefits. Through having that conversation, it might become evident that the applicant will take a reduced amount in return for working remotely once or twice a week.

Plenty of individuals prefer working for smaller businesses, with a fifth of professionals preferring employment with an SME and a third willing to take a pay cut to work for a start-up. For many businesses. being smaller is often better when it comes to recruitment and the freedom to offer bespoke packages that conglomerates can’t match give SMEs a head start.

During periods of growth and change, it is important that the new hire experience of your business is a positive one. By taking the time to research, both with online resources and word of mouth, your business stands the best chance of finding and securing the right hires at the right price.

For more SME advice and tips, read our related posts below. If you are experiencing cash flow challenges or want to realise your business growth plans, Take a look at our range of funding solutions and apply now to get started!





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