Employee Payroll: A Guide to What’s Fair When Paying Employees as a Small Business

paying employees

So you have started your small business and are ready to get the ball rolling! But there is one thing that you are unsure about. And that is, how much do you pay your new employees?

Paying employees is an important part of running a business. You want to make sure you pay your employees what they are worth. You may also realize the relentless competition for talent that is out there. But as a small business owner, you may not know what to pay your employees.

So what is a fair pay rate for your employees? This article will outline the details for you:

Paying Employees: The Hard and Fast Rules

To make sure you are paying employees a fair rate, make sure you follow these hard and fast rules BEFORE offering them a salary.

1. Research Salary Data

Make sure you research the salary data beforehand. This is something you will have to research on a regular basis as it can change very often – depending on the position and the type of work.

We recommend using a service such as PayScale to research what salaries are being offered for work.

You want to compete for your talent, so you want to pay around or above the common pay rate. If, of course, you cannot pay the usual salary and have to opt for the startup pay, try to pay as close to it as you can. You should also consider offering other benefits to compensate for the lower pay rate.

2. Follow The Law

Of course, you must be aware of the laws regarding how much an employee is entitled to be paid.

Your state will have a minimum wage that you must pay. If you expect your employees to work overtime, be aware that there are additional laws regarding overtime pay.

If you prefer to have your employees work as contractors, there is more leeway with regard to pay. But make sure you familiarize yourself with the laws regarding employing independent contractors as well.

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3. Discuss with The Candidate

Do not forget to negotiate the salary with a potential candidate. Ask your candidate what their salary expectations are.

You should also ask if they have any special situations. Are they willing to work on a part-time basis? Do they require any additional benefits? Are they willing to work for a lower pay rate but with a high degree of autonomy at the workplace?

Do not hesitate with negotiating the offered salary with a potential candidate.

4. Keep Records

While this does not concern paying employees, you can deter a potential candidate if you are not diligent with keeping pay records.

We highly recommend that when paying your employees that you provide them with a detailed pay stub. A pay stub is a record showing how much your employee has been paid, during what dates, and any tax withholding if applicable.

This may sound complicated, but you can easily use this free pay stub template to make a detailed pay stub for your employees.

They will thank you for it!

Note: A pay stub should be the minimum of what records you keep. We advise you also keep records of your employee’s name, address, and tax details.

Keep records of their contract. Keep records of any benefits, reimbursements, additional compensation that they are given.

5. Offer Incentives

This is something to focus on if you have to pay your employees a lower rate than what is expected from them or that is the normal rate in their line of work.

If you offer great incentives to your potential candidates, they are more likely to accept the position.

Here are some incentives that you can offer:

  • Paid days off
  • Commission or additional pay if the employee reaches a goal with a particular task/project
  • Lifestyle reimbursements: give partial reimbursements for education, gym memberships, travel tickets

Offering great incentives can really keep your employees loyal to your company.

6. How Many Paychecks To Write?

The greater the number of responsibilities that your employee has, the greater they are going to expect their pay rate to be.

But what if you were to outsource some of these tasks to other employees or even to temporary workers? This may be a great way to save money.

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If you do, however, decide to give your employee additional responsibilities than is expected, it is advisable that you increase their pay rate or offer greater incentives.

7. Decide When to Offer a Promotion

Your employee is going to want to know when they can get promoted. With a promotion, a pay rise is expected.

With that being said, you need to know when you can offer a promotion. While you may be tempted to offer a raise as soon as your employee is improving, you want to make sure you have the funds to go along with the promotion.

Do not offer a pay rise or additional incentives to an employee until you can afford to do so.

8. Look at the Hierarchy

Your company will have a hierarchy. As a result, employees in senior-level positions will expect to be paid at a higher rate than the junior-level employees.

But how much more do you pay? And what happens if they pay margin is minute? If a senior-level employee gets paid an insignificant amount higher than the junior-level employee, this can cause frustration from the senior-level employee.

Furthermore, this de-incentivizes the junior-level employee to move up. An employee will not want to take on many additional responsibilities if their pay does not increase significantly.

Before hiring your employees, you need to be clear about what the hierarchy is and how much you can afford to pay each position.

Pay It Forward

Now that you know the hard and fast rules of paying employees, you are ready to start hiring your stellar talent! Do not forget to pay this information forward by sharing it with your fellow business owners.

And be sure to follow us for more great articles on successfully running your small business.

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