What is an Employee Pay Rate

One of the first questions candidates have when they consider accepting a job offer is what they’ll make annually or hourly in terms of pay rate. But what is a pay rate? As a small business owner, you need to know what a pay rate is, so you can determine a fair, and even competitive, rate of pay to keep your employees happy and motivated.


You must also be aware of how your pay rate impacts the turnover ratio at your company and what factors may be influencing the pay you offer workers. 


Post a Job

What is a pay rate? 

As an employer, it’s critical to understand what a pay rate is. The pay rate definition is the rate of pay per period of work or unit of production that is given to an employee as compensation for their efforts. Pay rates may be hourly, daily, weekly or salaried. These pay rates are divided into pay periods, meaning employees can be paid on a weekly, biweekly, semimonthly or monthly basis.


As of 2020, biweekly pay periods were the most common in the United States, with 43% of employers paying their workers every two weeks. This is closely followed by weekly pay periods, which are the norm for 33% of U.S. employers. Semimonthly pay accounts for 19% of all pay periods in the United States, while just 4.7% of employers pay their workers on a monthly basis. 


Pay rates in the U.S. 

In the U.S., the rate of pay meaning is the hourly wage paid to workers. Approximately 80.4 million workers aged 16 and older in the United States, or 58.3% of the workforce, receive an hourly rate of pay. As of July 2021, the average hourly pay rate of all U.S. employees was $11.22


Why is it important for small business owners to understand the rate of pay meaning?

While it might seem trivial to consider pay rate as long as you’re offering your workers the legal minimum wage, small business owners can reap many benefits by offering their employees a competitive rate of pay. To be competitive, you need to know what the average pay rate in your state is and how your salary or hourly rates compare to other similar businesses in the area. 


If your pay rate is significantly lower than your competitors, there’s little incentive for employees to stay loyal to your company, and they are more likely to seek opportunities elsewhere. This can result in a high rate of turnover for your business, which is costly and inefficient. 


The connection between employee pay rate and your turnover ratio 

One of the benefits of owning and operating a small business is having total control over how you run the company. This means making the final decision on what you pay employees, provided you’re complying with the legal minimum wage in your state. But you may not realize that the rate of pay you offer your employees has a direct impact on your turnover rates.


Losing a single employee can be extremely costly for a company; a study by Manulife suggests that the cost of losing an employee is around 40% of that employee’s annual salary. This is due to the amount of money a company invests in the hiring process and training new hires, along with the time it takes to bring a new employee up to the same rate of productivity as everyone else on the team. 


As an employer, it can be beneficial to you over the long haul to pay your employees more money to keep them loyal to your business. A study conducted by PayScale found that 72% of workers who were denied a raise in their pay rate did not believe the rationale provided by the employer for denying the increase in pay and were considering leaving the company as a result.


The same study cited that employees who were denied a pay raise but believed their employer’s rationale for doing so had significantly higher satisfaction with their employer and were less likely to quit.


Factors affecting pay rate in the United States

While a company may offer one employee a certain pay rate, it may not offer the same rate to another. There are many factors impacting employee pay rates in the United States. 



A person’s qualifications and training directly impact the pay rate they’re offered at the time of hiring. An individual with certifications or a higher level of education is likely to receive higher pay than someone without this training. 



Previous experience in a relevant role can result in one employee being offered a higher pay rate than others. This can often be the result of salary negotiations upon hiring when an employee is leaving one company where they make a certain rate and want that amount matched. 


Job Tasks

Being able to perform additional tasks or taking on extra responsibilities can increase the value an employee provides to a company, resulting in a pay rate increase. 



The industry you work in has an impact on how much money you make hourly or annually. The working conditions and client base are a couple of reasons why one industry might pay a higher wage than another. 



Where you work affects how much money you make. Some states have higher minimum wage rates than others, meaning you’ll automatically make more money in that geographic location. 



Many professions are competitive, so how an employee performs can affect their pay rate. This might be through an annual performance bonus or a commission on sales. 


Pay rate bias 

When considering pay rates, it’s critical to note that there are issues of bias affecting how different people are paid. In the United States, the gender wage gap refers to the difference in earnings between men and women. As of 2018, women earned an average of 82 cents to every $1 earned by men.


However, this median number is different for women of color. For every $1 earned by a white man, African American women earn 62 cents, Hispanic or Latino women earn 54 cents, Asian women earn 90 cents, white women earn 79 cents and American Indian or Alaska Native women earn just 57 cents. 


While gender-based pay discrimination is illegal, it unfortunately still occurs, sometimes in the form of unintentional biases. As a small business owner, it’s essential that you strive for equality in the workplace and offer your employees a fair pay rate based on their skills and qualifications, rather than bias against gender or race. 


Rate of pay matters to small businesses

How you pay your employees directly impacts their satisfaction with your company. When you offer a competitive rate of pay to your workers, you can increase employee happiness and loyalty and reduce your turnover rate, saving you money in the long run. 

Post a Job

Ready to get started?

Post a Job

*Indeed provides this information as a courtesy to users of this site. Please note that we are not your career or legal advisor, and none of the information provided herein guarantees a job offer.