How much should you pay your staff?

If you’re a start-up thinking about taking on new recruits, knowing what to pay can be tricky. Read our comprehensive guide to help you gauge the right salary

Even in times of recession, recruitment is a competitive business. Candidates are vying for the best jobs and employers are competing for the best people for those positions.

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?

Before looking into these points, it is worth evaluating the job you plan to offer in terms of the responsibilities of the role and the know-how you want the candidate to possess. This will help you gauge what to pay.

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Evaluating the job

Is it a specialist job or a basic admin role? Will the new recruit be juggling a range of activities and resources, requiring planning and organisational skills? Will the problems they face day to day be simple and repetitive or complex and ever-changing? How much responsibility will they have to make decisions?

Big companies use evaluation schemes like the Hay method to ‘score’ jobs so that comparable jobs can be grouped in pay bands across the organisation. It’s not necessary to take such a formal approach for your first recruit, but thinking about these points will help you assess the value of the job and the pay that would be commensurate with that role.

Pay variations

Other factors that come into the equation include location, professional qualifications and experience. It’s a postcode lottery when it comes to pay.

If your business is based in London you will pay more, but if your start-up is in Northern Ireland, for example, an average weekly wage could be £200 a week less than the national average. (At the time of writing, the Office for National Statistics (ONS) puts the national average at £504.) If you are looking for skilled professionals you will have to pay more. Experience is perhaps a little more difficult to quantify, which is why employers often set a salary range for the job so that they can take this and other factors into account when they get to the point of making a job offer.

Tip: For information about average earnings in your region, check out the Annual Survey of Hours and Earnings published by ONS (www.ons.gov.uk).

Basic pay

The National Minimum Wage and National Living Ware are useful benchmarks to help you set basic pay. This is set at different levels depending on age. With the latest rise, from October 2016 the rates will be as follows:

  • £7.20 for those aged 25 and over
  • £6.95 per hour for 21-24 year-olds
  • £5.55 for 18-20 year-olds
  • £4.00 for 16-17-year-old workers above school leaving age but under 18
  • £3.40 for apprentices under 19 or 19 or over and in the first year of their apprenticeship.

These rates are reviewed annually by the Low Pay Commission, so you need to keep an eye out for any changes. While these are minimum rates that almost all workers are entitled to be paid, there is nothing stopping you paying above the minimum wage.

National Minimum Wage rates change every October. National Living Wage rates change every April.

For the latest information visit www.gov.uk/national-minimum-wage-rates.

Higher earners

Skilled workers, professionals and those with relevant experience command higher rewards. Many professional bodies publish regular pay surveys providing a benchmark on which to base salary scales. The main findings are usually freely available on the internet.

For example, the Institute of Chartered Accountants in England and Wales publishes an annual Career Benchmarking Survey with employment consultancy Robert Half (see www.icaew.com).

Information about managers’ pay is provided by the National Management Salary Survey, published annually by the Chartered Management Institute (CMI) and XpertHR.

Other sources

Job sites are another good source of information on salaries. If you decide to place your ad with a recruitment agency, they will be able to provide you with advice about the going rate for the job you wish to advertise.

Affordability

As with any expense in life, you are likely to be constrained by what your budding business can actually afford. You also want the maximum bang for your buck. To determine what you can afford, you need to consider carefully the value to your business of the gap this person will fill and what impact they will have on the bottom line.

Taking on a general admin person may be less expensive than employing someone with the skills to help your business grow, but it could be a false economy in the long run.

Employment package

The salary you are able to offer is very important, but it is not the only criterion on which individuals base job choice decisions. Career opportunities, the challenge of the role, job security, flexible working and other ‘benefits in kind’ all influence the candidate’s decision. So it’s important to consider the other incentives you may have to offer in your remuneration package, not just pay, to appeal to the type of candidate you really want to attract.

Health insurance, dental insurance, company car, childcare vouchers, tuition reimbursement, time off to study, season ticket loans, additional holiday purchase scheme, share scheme, one Friday afternoon off a month, these and other ideas could be included in a range of benefit options you make available to your new employee.

Make sure, though, that any benefits you do offer reflect the values of your business and are compatible with your operation. Remember also that there are tax and NIC implications for any benefits in kind you provide to employees. Working out the total cost of your remuneration package is vital before you start advertising the role.

Incentives

We’ve all read about mind-bogglingly large bankers’ bonuses, but more modest schemes are run by many businesses to incentivise and reward performance. If you do decide to introduce bonuses, commission on sales or performance-related pay rewards, make sure the scheme is fair, equitable, set against measurable targets and clearly communicated. And don’t move the goalposts halfway through the year unless you want to make your staff very unhappy.

For more information about performance-related pay schemes, visit www.cipd.co.uk/hr-resources/factsheets/performance-related-pay.aspx.

Stakeholding

Giving employees a stake in the business is probably the ultimate incentive. The John Lewis Partnership is a shining example of this principle in practice. John Lewis says that being a partnership business is about much more than sharing the profits:

“It defines our approach to what we do. With ownership comes responsibility, and the knowledge that our success depends entirely on providing the best quality products and services to our customers so that they come back to us again and again.”

You may not yet be quite as big as John Lewis, but giving employees a stake in the business is an option for a smaller business.

For more information about employee ownership, visit www.employeeownership.co.uk.

The whole package

As mentioned earlier, pay isn’t the only incentive a small, growing business has to offer. The opportunity to be in at the start of something new has great appeal for many people. In a recent survey, 83% of managers cited the challenge of the job as the main reason for taking on their current role.

The type of business you are or the products you sell could also provide a unique selling point (USP). Social enterprises, charities, eco-businesses and internet-based start-ups tick all the boxes for many job-seekers. Whatever your USP, make sure you identify it and clearly promote it in your job advertisement.

Equal pay

The latest equality legislation may seem like a potential minefield for the small employer, but it is based on a simple principle – fairness. If you approach it from this standpoint, it should be relatively simple to negotiate your way through all the legal obligations covered by the Equality Act 2010 in your dealings with employees.

The Act covers equal pay, which is defined by the Equality and Human Rights Commission (EHRC) as:ensuring that what you pay your employees is not affected, even unintentionally, by factors such as their sex, their race, or whether they have a disability.

Outdated work practices, expectations and stereotypes, differences in working patterns because of the caring role of many women, and a lack of quality part-time work are all cited as reasons why gender pay discrimination exists. The Commission has developed an online “equal pay toolkit” for small businesses to use: you can find this via www.equalityhumanrights.com.

From April 2018, under new government regulation, employers with more than 250 employees, will be required to publish data relating to the pay of their male and female employees. While the 2010 Equality Act states that employers must give men and women equal pay if they do the same or broadly similar work, the national pay gap – as reported by Office of National Statistics (Annual Survey of Hours and Earnings) – still stands at 19.4%.

Find out more about mandatory pay reporting here.

 

Planning ahead

No one wants to be stuck on the same salary for ever, 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. To do this you will need to review pay and benefits with your employee at least once a year.

Make sure that you:

  • Recognise and reward achievement
  • Ensure that pay reviews are transparent and fair
  • Make appraisal meetings two-way conversations
  • Put a scalable system in place.

In the future you may be in a position to take on more staff, and if you have put careful thought into the pay and benefits of your first employee (based firmly on their skills and experience and the going rate for the job), any future employees should slot into the structured pay band that you have carefully established for the business.

Taking on Staff, published by Crimson Publishing, is available to buy now.

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