What are salary bands?

Salary bands are pay ranges established by individual organizations for specific roles. They define the value each role has, based on market value and internal value, and provide opportunities for more effective pay management.

How does pay banding work?

Jobs with similar work requirements are grouped together within a salary range. All employees within these jobs reside in the same salary band. Employees just above senior level have their own higher band. These bands can overlap and often do. However, recently promoted employees who move up to the next highest band don’t always see an increase in salary due to the overlap. Even still, their potential salary increases due to a higher maximum within the new band.

Salary bands vs. pay scales

Salary bands differ from pay scales which often come up in negotiations. Pay scales provide both minimum and maximum amounts that guide both parties in coming to a decision about pay. Salary bands, however, rank job pay by experience, education and level of responsibility. Individual organizations set their own standards for these areas, with location and finances having the most significant impact.

Common occupations

Some industries and roles use salary bands more than others. They’re seen in areas with varying levels of the same general role. However, each level requires more responsibility or training than others. Common occupations that use salary bands include nurses, teachers and bankers.

Salary band examples

The federal government uses the general schedule payscale, a hybrid pay banding system. These salary bands have 15 grades, each with specific education requirements and job responsibilities and 10 steps that are dictated by seniority.

There are several other pay banding systems for the military and executives, but for civilians, the levels are as follows:

• GS-1 base pay starts at $19,738 with a maximum of $24,690
• GS-2 base pay starts at $22,194 with a maximum of $27,929
• GS-3 base pay starts at $24,216 with a maximum of$31,479
• GS-4 base pay starts at $27,184with a maximum of$35,338
• GS-5 base pay starts at $30,414with a maximum of$39,540
• GS-6 base pay starts at $33,903with a maximum of$44,073
• GS-7 base pay starts at $37,674with a maximum of$48,978
• GS-8 base pay starts at $41,723with a maximum of$54,242
• GS-9 base pay starts at $46,083with a maximum of$59,907
• GS-10 base pay starts at $50,748with a maximum of$65,976
• GS-11 base pay starts at $55,756with a maximum of$72,487
• GS-12 base pay starts at $66,829with a maximum of$86,881
• GS-13 base pay starts at $79,468with a maximum of$103,309
• GS-14 base pay starts at $93,907with a maximum of$122,077
• GS-15 base pay starts at $110,460with a maximum of$143,598

The GS-1 band is for civilian workers who don’t have a high school diploma, while GS-2 and GS-3 are for those who do have diplomas. Starting at GS-4, workers need an associate’s degree, while a GS-6 requires either an associate’s or bachelor’s degree. GS-9 starts with a master’s degree, while GS-12 requires either a master’s or doctorate. As the pay bands increase, the steps between them also increase.

Benefits of creating salary bands

Implementing a pay band system provides transparency when it comes to salary comparisons. Because it’s a stepped system, employees have a better understanding of the pay differences between similar roles. Along those lines, salary banding shows employees who may be under or overpaid, which may lessen the gender pay gap. As a welcome effect of both of those benefits, companies have a better chance of attracting and retaining top talent while providing current employees with a clearer understanding of promotion paths and expectations.

How to create salary bands

Follow these steps to create salary bands within your business:

1. Review your job descriptions

Instruct your human resources team to conduct surveys or work with managers at all levels to find out what each role does on a daily basis. Once you collect information from all levels of your business, you and the HR team can create official job descriptions. Compare your roles with similar roles in other organizations for additional help.

2. Rank your organization’s roles

With new or updated job descriptions recorded, rank job positions according to their qualifications and responsibilities. Doing so often requires a point or classification system. However, HR teams can determine the best ranking system for the business.

3. Research related markets

The U.S. Bureau of Labor Statistics (BLS) provides detailed information on almost every job role available, including pay averages and ranges of similar roles and industries. Ensure that the functions and responsibilities of your roles match those you’re researching at the BLS.

4. Create pay grades

Once you accrue a sufficient amount of market data, work with your HR team to group positions with similar pay. Each group you create makes a pay grade. Small businesses may only have a handful of different pay grades while larger businesses may have more.

5. Create ranges within the grades

Within each individual pay grade, determine a minimum, midpoint and maximum pay range. There are no right or wrong methods, as they should be unique to your business. Avoid large ranges, however, if you own a small business or otherwise have budgetary limitations.

6. Monitor and update

Salaries are always in a state of flux depending on the current health of the market. With the help of your HR team, watch market trends and how they’re influencing pay within your industry. Small changes occur often, but large changes may require an update to salary bands.

Salary band best practices

These are the best practices when using salary bands:

Monitor your salary bands

Once your salary bands are built and in place within your organization, monitor them along with market changes. Keeping up with new trends or faults within the market allows you to alter your bands as needed.

Stay on budget

While a particular salary band may fit well within your budget, it’s common to offer incentives, bonuses or other benefits to employees. When doing this, ensure your current budget accounts for both the salary band and any incentives you offer within each band.

Consider your current structure

If you have already established a pay structure and plan to use salary bands, consider your overall competitive structure.

For example, when determining salary ranges, determine if you should:

• Pay higher than the market average for retaining employees
• Pay market average to attract good candidates
• Pay lower than the market average due to financial constraints

Related: What Is Competitive Pay?

Salary band FAQs

Review these answers to the most frequently asked questions regarding salary bands:

Why use salary bands?

Salary bands provide consistency, fairness and flexibility within an organization. The method allows for pay differences by education and performance. Salary bands also allow you to pay employees within similar roles differently based on experience level, so you can cut costs where necessary. Your HR team establishes more effective budgets for labor costs by analyzing the number of jobs within each pay grade.

How are salary bands calculated?

While the calculation process is unique to every business, there is a mathematical standard most use. Once you determine an average salary for a particular role, divide the market rate by 1.00 + 1/2 of the range spread to find the minimum. Find the maximum by multiplying the minimum by 1 + the range spread.

Should you always hire at the bottom of the salary band for a given job?

Not necessarily. Employers need to find a beneficial balance between what the market rates are for fair compensation and how the offer effectively entices employees while motivating them to develop and grow.

Should you share salary band information with your employees?

Pay transparency is a dominant topic, and there are different ways employers can be transparent by discussing salary increase processes or how compensation is set. As far as disclosing how much each person earns, this may be impractical. There are many factors that go into candidate salaries, and employees may look at that information subjectively, leading to possible legal issues.