How do I know how much I should pay my staff?
Taking on a new employee is a major step for a start-up and you’ll want the best person, whatever the role is. To achieve this you will have to pay the going rate, or close to it; but what is the going rate and is pay the only factor that will swing the deal? You may already employ some people but are concerned that they may leave for more money elsewhere but you’re not sure if you are paying a competitive rate, so what do you pay?
- Statutory Minimum Wage – As Julie Andrews says in the Sound of Music, “Start at the very beginning, it’s a very good place to start.” At the very least you need to be paying the Statutory Minimum wage, which has just changed in April to include a higher rate for those aged 25 and over. This is called the National Living Wage. Remember the NMW changes every year, normally in October. The current rates are:
Apprentice: £3.30 per Hour
Under 18: £3.87
The National Living Wage is not to be confused with the Living Wage which is calculated by the Living Wage Foundation as a better reflection of the actual cost of living. It is not compulsory but a business may choose to pay the Living Wage for a variety of reasons eg an independent study examining the business benefits of implementing a Living Wage policy in London found that more than 80% of employers believe that the Living Wage had enhanced the quality of the work of their staff, while absenteeism had fallen by approximately 25%.
Two-thirds of employers reported a significant impact on recruitment and retention within their organisation. 70% of employers felt that the Living Wage had increased consumer awareness of their organisation’s commitment to being an ethical employer.
Following the adoption of the Living Wage, PwC found turnover of contractors fell from 4% to 1%. (Source: Living Wage Foundation).
The rates are:
18+ £8.25 per hour. £9.40 per hour in London.
- Evaluate the job – many large businesses will probably use a job evaluation system like Hay to do this, but a smaller business will probably not have the resource to do this however, you can evaluate whether the job is a simple administrative job or a more complex job which may need more defined skills and/or qualifications eg bookkeeper, with the more complex job will probably demand a higher rate of pay. If you prepare a good job description and person specification, it will help with this and help with any benchmarking.
- Benchmark – Again this does not have to be an onerous task or too time-consuming. If you are recruiting through an agency, they will have some idea of what the market rate for the particular job you are looking for. If not, then search job sites like Indeed which will show you what similar jobs are being advertised at. Ask around other business owners who are not your competitors but may employ similar people and see what they are paying. If you use an HR consultant, ask them. Once you have a range, you need to decide whether you are going to pay at the bottom, middle or top of that range.
- Affordability – It is pointless deciding to pay at the top end of any salary range but the business can’t afford it. So decide what you can afford and just as important, what value the new employee will bring so if you are employing a Salesman, how much extra business do you expect them to bring in, if a skilled person, what additional business will you be able to do etc.
- It’s not all about the money – pay is only one element of any remuneration package. With auto-enrolment, you will already be thinking about providing a pension, but there are other benefits which you may be able to offer which are attractive to your staff, eg Ride to Work Scheme, Child Care Vouchers (this is changing soon), subsidised Gym Membership, Health Cashback Schemes, company cars, EAP’s (employee assistance programs) etc. They do not have to be too costly but can add value to the overall package you are offering.
- Bonus and Incentives – As well as basic pay, you may want to look at providing a bonus scheme or some form of incentive. If you do, make sure it is easily understood, clear of ambiguity and clearly linked to the business. Make sure that any bonus is not contractual (look at the wording in your employment contracts and if in doubt seek advice) and if you have a salesman on commission on top of a basic wage, this commission needs to be included in holiday pay.
- Plan Ahead – No one wants to be stuck on the same salary forever, so you do need to give some thought as to when you are going to review an employee’s salary and how you will make decisions about what level of increase to give if any. To do this you will need to review pay and benefits with your employee at least once a year.