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What to consider when setting employee pay levels

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Setting the correct level of pay for employees in a company is a delicate balancing operation, as paying too much can result in a reduction of profit, while not paying enough won’t attract the most suitable candidates, and could even breach national regulations. Take some time to consider a reasonable pay level that will be acceptable for a skilled employee and the company.

What do you want from the employee?

Consider the qualifications and experience you require from a member of the workforce. You will be expected to pay more for a highly skilled member of staff than for an apprentice or trainee. If you want to attract a talented workforce, you may need to offer slightly higher than average rates of pay. However, a salary is another business expenses and as such, you shouldn’t pay more than necessary.

Benchmarking

You could benchmark against similar employers in the local area, to check their rates of pay. If you want a highly skilled worker, you may have to offer a higher rate of pay, especially if there is a shortage of appropriate talent in the area. Management accountants will generally deal with setting pay levels, so you can concentrate on other areas of the business.

How much is the workforce worth?

When you are setting pay levels, you may need to ask yourself how much it would cost not to have those people in place within the company. For instance, if you don’t have a payroll team, how much will it cost to deal with payroll. Outsourcing may be a more cost effective solution, especially for a smaller company.

Regulations

The National Minimum Wage and the National Living Wage will both have to be considered when setting rates of pay, as you have to comply with current legislation. If you require employees but think that the current required rates will stretch the bottom line of the company, consider other ways to make savings within the business to offset employment costs.

Employee benefits

In addition to payment of a salary, you may also consider paying benefits, like medical benefit or offering incentives like a cycle-to-work scheme or a crèche for working parents. Take any employee benefits into account when setting rates of pay.

Setting pay levels can have a huge impact on the company. For more insight into this, why not contact us for an informal discussion?