A complete guide to creating salary bands in the UK

How much you compensate employees on your payroll is one of the most important decisions to make as a small business owner, and it can be tricky to determine the best salary for a role – and for your company.

Building salary bands – also known as pay bands – into your company’s structure can help guide your pay decisions as you welcome new recruits.

This article will explore what salary bands are, including how to build a salary band structure, what to consider, and common mistakes to avoid along the way.

What is a salary band?

A salary band or pay band reflects the minimum and maximum sum a company will pay an employee in a certain job role at each level.

For example, a manager may decide that the salary band for a junior graphic designer is £21,000 to £26,000, while the band for a midweight graphic designer grows to £27,000 to £32,000, and then £33,000 to £40,000 for a senior designer. This would mean the overall salary band for graphic designers at the company would be £21,000 to £40,000.

Salary bands are reviewed by HR regularly to ensure they reflect the market rate for the role and company’s position – this way, your business can stay competitive in the hiring market and compensate employees fairly. This also boosts the chance of employee retention.

Read more: what are the current National Insurance rates?

Why should I use salary bands?

There are a number of positives to having a salary band structure at your small business.

Salary bands stop unconscious bias creeping into salary negotiations, ensuring employees know they are on a level playing field. Having a formal process for salary bands shows employees and potential hires that salaries are consistent and fair, which could promote company loyalty too.

The transparency that comes with salary bands can help employees feel they are valued equally, fostering both trust and engagement between employers and employees. They can help satisfy employees that there is a path to progression and pay rises ahead of them if they’re not yet being paid at the top of their band.

Salary bands are also incredibly useful at the hiring stage to help HR decide on what salary to offer a potential new recruit. Without them, it can be difficult to judge what to offer a candidate, and a figure that’s been plucked out of the air may not reflect your company – for example, under offering can risk your reputation, and over offering could create financial stress for your business and unfair pay amongst fellow team members.

Pay bands also help close the gender pay gap at the hiring stage – when a new salary is offered simply based on the candidate’s previous salary, this has been found to actually further the gender pay gap.

Read more: How to discuss salary expectations

What are the disadvantages of salary bands?

There are some potential downsides with implementing salary bands. Employees that are being paid below any new salary bands will need their pay adjusted once the bands are enforced. This can be seen as a disadvantage for the business because it could be costly but, overall, it will be a positive change.

Building a pay band structure is time consuming too but, ultimately, it will prove advantageous for your business in the long run.

What should I be mindful of when creating salary bands?

Salary bands will differ from company to company, but the main factors to consider include:

• The company’s budget
• The company’s positioning in the external market
• The company’s general compensation strategy
• The market rate for different roles

There is no one-size-fits-all approach to setting salary bands, and each small business owner will have different priorities for how they approach this. For example, is offering a salary that’s competitive in the wider market important to your business in order to attract more talent? On the other hand, is keeping costs low the main focus instead?

Other points to consider include the location of the role (e.g. remote, hybrid, or in-office) which would reflect any commuting costs. Salaries also tend to vary by region across the UK, with employees in London earning the most.

The expectations placed on a person in a certain role should also be considered – for example, it’s common for staff in small businesses to cover more varied tasks than employees at larger companies, and potential recruits may expect to be compensated for this.

Remember, paying at least the National Living Wage is something you might want to consider.

What are salary band ranges?

Every salary band has a range. This represents the minimum and maximum a person can earn in a certain role, giving an employee the opportunity to get pay rises while staying in the same position before progressing to the promotion stage.

The range size tends to be around 15% either side of the midpoint sum, as a rough guideline.

What are common mistakes with salary band building?

Implementing a salary band structure into your small business from scratch can feel overwhelming. There are a lot of factors to consider, but here are some common mistakes to be mindful of:

Poor transparency and communication

Failing to communicate the rationale behind the introduction of salary bands to your employees could create confusion amongst your team.

Avoid this by explaining the factors considered as part of the salary band building, and what this means for employees. It’s especially important that team managers understand the salary bands so that they can chat to their teams about them.

Not enough data analysis

A lack of data analysis when salary band building can lead to ranges that are too low or too high for the market.

Avoid making this mistake by allocating time to source reliable data to guide your decisions – this can be achieved via third party consultancy firms if you don’t have capacity for this yourself. Look at industry salary benchmarks and trends to ensure your small business can compete for the top talent.

No future planning

A lack of flexibility in salary bands can limit opportunities for employees to progress, causing poor morale and reduced loyalty.

Avoid this mistake by building an adaptable structure, and anticipate growth and market changes. By making career progression a key consideration, you are creating a working environment for your team that fosters growth.

When should I review my salary bands?

It’s important to regularly review and update your startup salary bands to ensure they reflect the market and your company’s position. This is because market rate salaries fluctuate due to factors like inflation and demand for a role. By reviewing your salaries on a regular basis, you are ensuring that your company is staying competitive and fair to your employees.

HR is usually the department that undertakes periodic evaluations of salary bands – this could be quarterly, bi-annually, or every year.

Final thoughts

It can be tricky to decide upon and implement a salary band structure at your company, but the benefits it can provide your operation are significant – better transparency, a fairer remuneration process, and even the opportunity to help close the gender pay gap are just some of the potential perks.

For more tips, check out our guide to paying your employees, and our list of the best HR and payroll software to streamline the process for your small business.

Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, TNW, UKTN, The Business Magazine and Maddyness UK. She also works closely with agencies such as CEW Communications to develop content for their startup and scaleup clients.