Quick Guide To Setting Salaries
 By Terry M. Blair

You’ve put price tags on your products. You’ve set rates for your services. You’ve even determined your own compensation.

So why do so many small-business owners struggle with deciding how much to pay an employee? Because there are so few rules and so many variables.

Setting an employee’s wage depends upon many factors:

• The location of your business in the U.S

• Whether your location is rural or urban

• Industry standards

• The job market

• The wages your competitors are paying

• A job candidate’s education and experience

• The value of fringe benefits and perks you offer employees

• How much your small business can pay in wages and remain profitable

Still, you’ve got to put a dollar figure on what an employee’s job is worth. To help you determine an employee’s salary, follow these guidelines.

Do your budget homework
Before you place a help wanted ad, determine what your small business can afford to pay an employee. Look at your budget for the answer.

And remember, you won’t have only the expense of weekly or month wages. Any perks you provide, such as holiday, sick time and vacation pay, must also be taken into account. Also be sure to budget for raises and bonuses you might offer over the next year or two. The same holds true if you offer employee health insurance or retirement contributions.

Write a job description
Make a list of the specific job duties you want the employee to handle. Define the key job responsibilities as clearly and as thoroughly as possible. Simply deciding on a job title for the position isn’t enough.

For instance, maybe you want to hire an administrative assistant. But you want that assistant to also handle some light bookkeeping and perhaps even payroll duties.

When you begin researching the job market, your job description will guide the way. You can use it to compare what other businesses pay employees who match those job functions.

Research the job market
With your job description in hand, you now need to find out what similar-size companies in your industry are paying. You want to find out what salaries these firms pay so you can offer a competitive wage to job candidates.

Look at these sources:

• Classified ads. Read the help wanted ads in local newspapers, professional or trade publications, and online. Look for jobs that describe positions similar to the one you want to fill. Some ads may list starting salaries. Others may give a salary range. Some trade and industry magazines also publish annual salary surveys.

• Business associates. Talk to colleagues in your industry and at your local chamber of commerce. If you’re a member of a professional organization, call the headquarters to see if the organization has conducted recent annual salary surveys. Talking to suppliers and vendors might be helpful too.

• Government sources. Check out the U.S. Bureau of Labor Statistics. You can find salary histories by clicking “Wages by Area and Occupation” on the home page.

• Other sources. Staffing companies as well as local colleges and universities may be willing to offer salary information. You can also go online to your favorite search engine and enter “salary surveys.”

Determine the salary range
You have your job description. You know what your budget can afford. You’ve researched what other companies are paying. Now it’s time to set the wage you’re willing to pay.

But don’t pick a single dollar amount. Instead, set a minimum and maximum salary you’re willing to offer a job candidate. These limits will help you stick to your budget and at the same time help you screen out candidates who aren’t right for the job.

Prepare your job offer
For most employees, jobs are about more than money. Compensation comes in many forms: professional development, opportunity for promotions, even flexible work schedules and telecommuting privileges.

Make a list of the fringe benefits and work-life balance perks you can provide to an employee. When job candidates ask about the salary you’re offering, include your list of perks along with the actual dollar amount you’re willing to pay in wages.

(Posted September 2006)

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