How to Set Employee Salaries

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A salary is a common form of compensation for employment. 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. This article gives tips on how to set salaries for new hires, outlines the differences between types of salaried employees and answers some FAQs on salaries.


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Tips for setting employee salaries

It can be a challenge to set the appropriate scale and structure for a salary. Here are some tips that can help:

    • Determine the value: List the job responsibilities, duties, required skills and experience. Determine also, how essential this role is to your organization.


    • Research the market. Compare salaries for similar roles. Researching salaries can help you understand which skills, experience and qualifications you should expect from applicants. It can also help you decide if your company can sustain the salary long term.


    • Set a minimum and maximum salary. Using your research and evaluation of the role’s importance for your organization, set a minimum and a maximum salary for the role. The minimum is the ideal salary you’d like to pay the new employee. The maximum is the highest salary you’d pay. Ensure it is feasible for your organization.


  • Be flexible. 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. It’s important for the wellbeing of your organization that competent employees are sufficiently compensated.

Related: Hourly to Salary Calculator for Employers


Exempt versus non-exempt employees

There are two, main types of compensation structures for salaried employees:

    • Exempt: By law, exempt employees are not entitled to overtime pay, minimum wage or many benefits required by individual states. Most non-exempt salaried employees work in administrative, executive, supervisory or professional roles. To attract top professionals, many employers provide exempt employees with attractive benefits in their employment packages.


  • Non-exempt employees: By law, non-exempt employees are entitled to overtime pay at a rate of 50% more per hour when work has exceeded 40 hours per week. They are 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: How to Find Good Employees


Further reading

Deciding between hourly wages and a salary will depend on the nature of the role and your organization. While salaries make your payroll costs predictable, but for some roles, an hourly wage may be more appropriate.
Note that although there are no federal guidelines regarding breaks for salaried employees, many states have their own laws requiring meal breaks. Ensure you understand guidelines and laws for your own state.


Employee salary FAQs

Here are two frequently asked questions about salaries:


When are salaried employees paid?

Although salary is usually negotiated at a per-year rate, pay periods vary. Salaried employees may be paid:

    • Weekly: While many hourly employees are paid weekly, some companies opt to pay salaried employees on a weekly basis as well. This can be costly for some employers as payroll must be processed on a weekly basis. This results in 52 paychecks every year.


    • Bi-weekly and semi-monthly: Bi-weekly pay periods result in 26 or 27 paychecks per year, as paychecks are issued every two weeks. For semi-monthly pay periods, paychecks are issued twice per month, resulting in 24 paychecks per year. These pay periods are most common, as they work best for employees and make payroll processing reasonable for employers.


  • Monthly: A monthly pay period is convenient for employers in terms of processing and costs, but is likely to lower employee satisfaction. It may also, in some cases, violate state laws.


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.

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