How Much Should I Pay My Employees? An Informative Guide

Are you asking yourself the question: how much should I pay my employees? These 6 factors will help you get to the right staff salary.
how much to pay my employees

Are you asking yourself the question: how much should I pay my employees? These 6 factors will help you get to the right staff salary.

When running a business, you know one of the biggest priorities is treating your employees well. This occurs when you have a strong work culture, a motivated and friendly work environment, and room to grow.

This also includes paying your employees well. But you may wonder, “How much should I pay my employees?”

No worries! This detailed guide will show you how to determine your employees’ wages and salaries.

Use’s Free Salary Calculator to convert hourly, monthly and annual wages instantly.

How Much Should I Pay My Employees?

Determining how much to pay your employees is an important decision to make. You do have to pay them at least the minimum wage, but on top of that, you need to consider the value they bring, the budget of your company, and the competitive advantage.

We also suggest using a paystub maker service as you’ll need to provide detailed pay stubs for your employees.

Here’s what else you need to know to determine pay rates.

1. Check Average Pay Rates

When looking to hire for a new position, you should do your research on the average pay rates for the position.

You want to determine whether you can match this pay rate or if you can exceed it. If you are unable to pay the average pay rate but you absolutely need to hire for the position – you want to offer additional benefits that can draw potential candidates in.

2. Keep an Eye on Your Budget

While you may be tempted to pay an employee as much as possible to keep their loyalty, you need to make sure you don’t dig too much into your budget.

You will always need a steady cash flow and savings for your business to continue thriving. Normally, a business can spend anywhere from 40 to 80 percent of revenue on paying employees.

You want to determine how much value an employee and their role will bring to your company. You also want to set a goal of how much revenue you want leftover by the end of each month.

These budgeting practices will help you determine how much to pay your employee in order to keep their loyalty and not hurt your profits.

3. Know the Laws

In addition to your state’s minimum wage, there are other laws you need to know.

If you are willing to allow an employee to work overtime, you need to know the laws of how much you are required to pay them in overtime wages. There may be some cases, such as salaried workers, in which they are not entitled to overtime wages. But if you expect them to work more than the standard 40 hours, you may wish to consider raising their salary.

If your workers can earn tips, you also want to look into the laws (if any) of your state regarding tipped employees.

4. Cost of Benefits and Taxes

You will likely have to provide benefits to your employee and withdraw taxes from their wages. This can also help you determine how much to pay them.

Your employee will only receive what is left after benefits and taxes are paid for. You need to keep this final number in mind and think of it from the employee’s viewpoint. You need to consider if this final price is competitive or if another employer can leave the employee with a higher wage even after paying benefits and taxes.

If your employee is a contractor then you will likely not have any legal obligations to provide benefits or withdraw taxes, though there may be some obligations depending on your jurisdiction.

Contractors can often be given a higher salary and not have taxes to be withdrawn, which is what attracts many talented professionals. However, as benefits are unlikely to be provided, this may also turn off some talent. You have to determine what you think is best.

5. Reimbursement, Raises, Bonuses

As an added bonus for your employees, you may wish to consider offering them reimbursement for any expenses.

For example, if they have to take a long commute you may wish to reimburse them for gas. If there is a parking fee at the office building, you may wish to reimburse this fee. Again, you’ll have to consider if this can fit your budget without deeply cutting into revenue and affecting profits.

You will likely wish to give an employee a raise after they have been working for the company long and shown a great track record. Before promising a raise, consider how much can be afforded. You want to look at your competitors and see how much they pay in raises.

When giving a raise, you’ll want to have a competitive salary. Paying a few cents above the minimum wage won’t cut it!

With bonuses, you will be giving a one-time payment throughout the year – usually around the holiday season. You want to choose a generous amount that will make your employee feel that they are truly appreciated. Remember to document bonuses as a separate line item on your employee’s pay stub.

6. Flexibility

You want to be flexible with how much you offer. Make sure that you attract the best talent to your company – and for that, you should be willing to negotiate a salary. Don’t cringe if your candidates request to be paid a higher salary or more than the minimum wage if they are on an hourly wage.

You can also provide them with the option to work full-time, part-time, or on a temporary basis. If they aren’t satisfied with the salary, they may be willing to still take it if they don’t have to work full-time.

If you are a startup, you can attract talent by offering them shares in your company, paying for gym memberships, co-working spaces, and offer other perks in addition to their salary. This is especially beneficial if your offered salary isn’t the most competitive.

Be willing to compromise how much you offer as remuneration to your talent, as long as it doesn’t drastically affect your revenue.

Start Hiring!

Now that you know the answers to “How much should I pay my employees?” you can determine how much you want to offer. Now, you’re ready to start hiring!

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