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How to Set Employee Salaries

While there are several ways to structure an employee’s compensation package, salaries are very common for skilled, high-paying positions. While hourly payment and contractual or task-oriented labor offer greater flexibility, the consistency and reliability of a salary benefits employers and employees alike.

With a salary, an employee receives a fixed amount of money for work performed within a certain time period. Many salaried employees work full-time positions and are considered long-term resources by their companies. However, an employer who wishes to pay on a salaried basis needs to learn how to determine salaries for new hires and understand their legal obligations to those employees.

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Tips for setting employee salaries

As soon as you begin learning how to determine an employee salary, it becomes clear how complex and multifaceted a compensation package really is. For one thing, it’s not easy to calculate exactly how much value a position creates within your organization. Even in the same position, candidates with different levels of skill will not create the same value. Defining a desirable range of qualifications and figuring out what constitutes a fair salary requires in-depth research. Even after you’ve done this research, you may still face limitations related to your organization’s hiring budget and resources.

Plan for flexibility in your compensation

It would be difficult to set a single, exact salary amount for every new hire. Any position will have a range of suitable candidates, from those who are just qualified to others who are nearly overqualified. A candidate who’s just starting out has room to grow within the position, while a highly qualified employee should have their experience and skillset recognized from the start.

As such, setting an exact salary for any position is thankfully not desirable at all. Instead, explore the minimum qualifications and experience needed as well as the ideal. Plan to post a negotiable salary range that represents all of these possibilities when you post a job description.

Determine the value the position creates

The first step in nailing down the precise salary range for a position is assessing how much value the position creates. For instance, imagine that you’re setting the salary range for an accountant. Consider the skills that they bring to the table, the responsibilities they fulfill and the difficulty of dispersing these responsibilities among your existing workforce.

Then, factor in the loss of efficiency that comes with burdening your existing staff with additional responsibilities that may not relate to their work. The value that a position creates in your organization is not just its positive ROI but also the cost of that position going unfulfilled. While it would be unsustainable to pay every position the full revenue it generates, it’s necessary to understand the importance of a position. Of course, calculations may also indicate that the position in question isn’t a necessary addition to your workforce.

Research the market for how to determine a salary

If you’re wondering, “How much should I pay for a salaried position?” the best thing to do is compare salaries for similar positions. Websites that provide salary information are especially valuable when they also carry other figures, such as qualifications, employee satisfaction reports and other feedback. If you find a position similar to yours that’s paying what seems to be a low rate, take a more in-depth look at employee satisfaction and the culture of that company.

On the other hand, critique salaries on the higher range of the spectrum by seeing the quality of talent earning these salaries. Instead of stopping at simply comparing the salary numbers, ensure that you understand how qualifications and employee satisfaction relate to them. This will also give you an idea of the sort of talent that you can afford and whether or not hiring a top professional is sustainable for your company. Many companies make the mistake of offering low-end pay and demand high-end experience, but this can hinder your talent search as well as undermine morale and drive up turnover.

Related: How to Find Good Employees

Be realistic about balancing skills and payment

As the employer, it’s natural to want to pay the lowest possible salary. However, keep in mind that employees who are satisfied with their pay are likely to deliver significantly superior results. If you refuse to compensate employees as their skills deserve, they won’t be as loyal or motivated, and your organization may suffer productivity losses.

If you can’t afford to pay the highest salary range, adjust your expectations and offer entry-level payment for entry-level skills. As their skills, experience and contributions to your company grow, you’ll ideally be able to match this with a higher salary or other benefits. Keep in mind that if you don’t offer your employees the payment that their skills warrant, another company might.

How to figure out if a salary or hourly pay is better for a position

Deciding between hourly wages and a salary will depend on the nature of the role and your organization. While salaries are appealing for the employer and most employees, they’re not suitable for positions that are more short-term or less consistent. For instance, temp positions usually receive payment on an hourly basis since short-term contracts make them unsuitable for salaries.

However, the biggest difference between salaried and temp positions is that salaried jobs have fewer labor protections, such as federal break guidelines. Some salaried positions are also exempt from federal overtime laws although state laws surrounding breaks and overtime may override these exceptions. Ensure that you’re fully up-to-date on local labor laws before choosing whether a position should be salaried or hourly.

Exempt vs. nonexempt employees

There are two primary compensation structures for salaried employees:

Exempt

By law, exempt employees are not entitled to overtime pay, minimum wages or many benefits that individual states require. Most exempt salaried employees work in administrative, executive, supervisory or professional roles. Many employers provide exempt employees with attractive benefits in their employment packages to compensate for these exemptions and attract top talent.

Nonexempt employees

By law, nonexempt employees are entitled to overtime pay at a rate of 50% more per hour when work exceeds 40 hours per week. They’re also entitled to benefits required by the Fair Labor Standards Act (FLSA), such as the minimum hourly wage according to municipal, state and federal laws.

Related: Hourly to Salary Calculator for Employers

Employee salary FAQs

While there are many questions that potential employers have about paying employees salaries, here are the answers to a few common ones:

When are salaried employees paid?

Generally speaking, employees and employers negotiate an annual rate when determining a salary. However, they receive this salary in one of several different increments with pay periods that vary from company to company. Typically, companies pay their salaried employees on a weekly, semimonthly or monthly schedule. In general, slower payment periods are more favorable for the company as they cut down on payroll processing costs, while more frequent payment periods favor the employees. It’s also important to note that monthly payment is illegal in some states where businesses must pay their employees more frequently.

Can salaried employees receive tips?

Most employees who earn gratuities, such as restaurant servers, are paid on an hourly basis. There are, however, types of salaried employees, such as chefs or customer-facing managers, who may receive tips. If a customer directly tips a salaried employee, the employee can usually keep the money. However, in establishments where employees are required to pool tips, salaried employees are not normally entitled to share in the pool.

What are the advantages of a salary?

A salary can help attract and hold higher quality talent due to the consistency and reliability that it represents. Furthermore, it normalizes payroll and helps simplify payment and accounting. It’s common for white-collar and information-oriented companies that revolve around regular deliverables to rely on salaried employees to fill most positions.

Can salaried employees leave early?

Most jobs require salaried employees to be present for their full workday, but it’s increasingly common to offer more flexibility. In particular, some positions allow workers to consider the workday complete once they have finished a task to suitable quality standards. If the employer upholds such a policy, the employee’s compensation will remain the same.

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