Determining How Much to Pay Your New Hire
If you’re in a position to hire a new employee, that’s great news. You’re bringing in revenue and have enough business to warrant hiring people to help you.
Rather than arbitrarily choosing a number and deciding that’s what the role is worth, do some research to determine how much you should pay, and what you can afford to offer.
You’ll need to know
- what responsibilities the new hire will have
- how much you can afford to pay
- what the competitive rate of pay is
- what value they’ll bring to your business
- what they would reasonably expect to be paid
A good first step is to determine if you need a full-time employee or could cover your needs with a part-time, contract, or seasonal hire. In some cases, alternatives will do just as well or even better for you in the long-run. And, if you hire someone part-time, seasonally, or on contract first, you get a sense of what they’ll give to your business before you take the step of making them permanent, full-time.
Once you’re comfortable that you need to move ahead with a you can determine how much to pay.
- Set a clear job description
A clear job description makes it easier for you to set the wage or salary. Write out a list of responsibilities you’ll expect the employee to undertake, including a percentage of their time that they should spend on each task. Research similar roles to see what activities are commonly associated with this job at other companies, and how they assign duties. Once you know the activities required, write a job title.
Look at your current business and see where there are gaps that are holding your company back, or activities that you just don’t want to undertake. Conduct a talent gap analysis to determine if there are skills you absolutely need to hire for.
- Research pay at other companies
You need to make sure your offer is competitive so you attract the right people while remaining profitable. These days, there are many places you can look to make sure you’re on the right track when it comes to setting wages and salaries.
- The legal requirements
Depending on the job and what you plan to offer, there could be legal requirements that affect how much you must pay. Make sure you’re aware of those rules and are compliant with them.
The Internet has a lot of information about what to pay your employees. You could look at job websites, which give you the market rates for jobs in your area. You can also do a job search online to see what similar businesses in your area are currently offering–or have offered in the past–for roles similar to the one you’re hiring for.
Job candidates likely have an opinion about how much they should get paid for working with you. This will be based on their education and experience, the local market, and their needs. Before you make an offer, ask about their current salary (including whether they receive a fixed salary or wages), what benefits they receive, and what they would like to earn working for you.
- Know how much you can afford
Outside research is great, but you also need to know if you can afford to pay the new employee. After all, an offer is only good if you can back it up.
You’ll need a calculator–or a trusted bookkeeper or accountant–to determine if you have the profits to pay this employee.
Among the questions to ask:
- How much revenue is the new employee likely to generate?
- What is the anticipated return on your investment?
- How much time will they save you?
- Will it affect how much money you put back into the business annually?
- Will there be enough room in your profits to give this person a raise in a year?
Remember that if the employee is full-time, you need to factor in their benefits to their salary, to determine the total cost to you. This might include pension contributions, and insurance expenses. As an estimate, take their potential salary and multiply it by 1.4 to get a true cost of hiring the person.
- Explore alternatives
Although income is an important factor in any employment decision, it’s not the only thing people consider. Employees may be willing to accept a lower salary if there are other benefits or opportunities for bonuses.
Some employees might be fine taking a lower salary if they have a flexible work schedule, such as working four days a week, or having shorter days. Others might take less in regular income if there’s an opportunity for shares or bonuses. Still others value professional development and would appreciate the chance to take courses and learn new skills.
If you’re worried you don’t have the income to sustain a full-time employee, there may be other things you can offer instead, that will be just as valuable to them.
Once you know what you can afford to pay, have examined additional benefits or alternatives, and have chosen the right person, you’re ready to make an offer. A competitive offer that’s grounded in research and an understanding of the person’s value–as well as the value the role brings to your business–will go a long way to ensuring your business is attractive to the right people.