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How Much Should You Pay Staff?

If you're new to being an employeer, you'll need to spend a bit of time thinking about what you're going to pay staff in your business. This article will help get you understand what you legally need to pay and other payment considerations.

You will learn

  • Difference between national living wage and living wage
  • How to decide on an employees salary
  • What other methods can you use to incentivise

Taking on a new employee is a major step for a start-up, and you will 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 not be sure if you are paying a competitive rate, so what do you pay staff?

1. 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 includes 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 available on the Government's NMW page.

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. For example, 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.


2. Evaluate the Job

Many large businesses will probably use a job evaluation system such as Hay to evaluate the job, but a smaller business may not have the resources 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, e.g. bookkeeper. 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.

3. 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 is for the particular job that you are looking to hire 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 a 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.

4. Affordability

It is pointless deciding to pay at the top end of any salary range if the business cannot afford it. Decide what you can afford, and, just as important, what value the new employee will bring. So if you are employing a sales person, how much extra business do you expect them to bring in? If they are a skilled person, what additional business will you be able to do? 


5. It is 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. For example, Ride to Work Scheme, subsidised Gym Membership, Health Cashback Schemes, company cars, EAPs (employee assistance programs), etc. They do not have to be too costly, but can add value to the overall package that you are offering.

6. 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 that 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.

7. 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.

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Written by:

Ashley Heeley

HR expert

Email Address:

Telephone: 0784 125 5480