Structuring a Fair Salary Scale

Once you have decided that you need to hire a new member of staff, you need to think not only about what their role will include, but also what you will pay them. Paying a fair salary is a vital aspect of procuring the right new recruit – get it wrong and you will likely end up with someone unsuitable for the job, whether they are over qualified and want more, or underqualified and can can’t deliver. To structure a fair salary scale, both the job specifications and market data must be considered.

Comparing with competitors

The first and probably simplest way to start building a picture of a fair salary, is to take a look at what your competitors are paying their staff who are in a similar role. To do this, simply search for the same or similar job titles on job search sites. Additionally, there are helpful online tools including Payscale and Glass Door, which offer information regarding the average salaries being offered for specific roles, in a variety of sectors, companies and locations.

The cost of living

After determining the bracket of pay that other companies are offering, another important factor is to consider the cost of living in your area. While a job might be worth a certain salary in one area, this is likely to differ in other areas of the country. For example, the cost of living in London or Oxford is notoriously higher than that of Leeds or Stoke-on-Trent. Not only housing costs – both to rent and to buy – should be taken into account, but also the price of fuel, vehicles, public transport and other living costs.

If your company is located in a high cost of living area, and you have a limited budget, you may wish to think about advertising the role in other, lower cost areas of the country – if remote working is an option. By doing this it’s possible to offer a lower salary than your local competitors, but an attractive one in the area of advertisement.

Consider the worth of the job

An honest and simple way to decide on a salary is to look at what the job is worth to you. To determine this, consider the following:

  • Is this additional member of staff vital to the success of the business, or could you manage without them?
  • Could the roles in their job description be absorbed into your existing employees’ roles?
  • Could you do the job yourself?
  • Or does it require specific skills, qualifications, or experience?
  • Would you do this job yourself for this salary?

By thinking about these aspects it should be easier to recognise how much the job is worth, which will then enable you to better understand what kind of salary the role should come with. If you think it might be possible to manage without an additional team member, by dividing the tasks in the job specification among your existing team, this should be explored before hiring anyone. Conversely, if you determine that someone new is needed to perform the work, and this work is necessary in order for the company to thrive, you should consider offering a fairly generous salary.

Set upper and lower budget limitations

When you have taken competitor salaries, the cost of living, and the worth of the job into consideration, hopefully you will have a good idea of the rough figure you want to offer as a salary. The next step is to determine your strict upper and lower limits according to your budget. The upper limit should be dictated by the most you want and can afford to spend on a new employee, but the lower limit is slightly more complicated.

When setting your lower limit, your first thought might simply be ‘the lower the better’, however its important to realise that offering too low of a salary will have negative consequences. The first problem is that a low salary will likely attract unsuitable candidates; those who do not have the level of knowledge and experience to carry out the job. Another issue is that even if you do manage to hire a candidate with the desired skills, it’s unlikely that they will stay in the position for a long time. This is because it will only be a matter of time until they discover that they can find similar roles at other companies, offering a higher salary.

Remember that you also need to leave room for negotiation. This means that you shouldn’t necessarily advertise the job with your highest possible salary – this figure should be reserved for the very best candidate who has other offers, but who you can’t afford to lose and see end up working for a competitor. In the world of modern recruitment it is common for applicants who are offered a position to request a higher salary, so this is something that must be anticipated and adequately prepared for.

Updating your salary scale

Business-owners should make a point of reviewing the salaries of all their employees on a regular basis, regardless of whether they are in the process of recruiting new hires.

Many companies use the UK’s rate of inflation as a basis for their salary scale. According to the Office for National Statistics, in 2020 there is an inflation rate of 1.8%. Those using this as a guideline would therefore increase salaries by 1.8%. As an example, this would mean increasing a £25,000 salary to £25,450.

Even though you might conclude that it is not necessary, or financially viable, for you to increase salaries according to the inflation rate every year, it is important that you do keep these rising costs in mind. Employers who choose not to increase salaries after several years or more, are likely to find that their staff will begin to look elsewhere for a position that offers more. This can be one of the biggest problems for the payroll department, however it can be avoided by investing time into re-assessing what your employees and their roles are worth to you – in the same manner as you would when determining the salary of a new recruit. The most important thing is to make sure your salaries are competitive with other companies – only this will help you retain your employees.

Offering a fair salary scale is an essential part of any business if they want to hire the right candidates who will facilitate prosperity for the company. While business owners need to make decisions that make financial sense, the return on investment of paying a higher salary for a skilled employee is likely to be significant, and a huge advantage to the company in the long run.

Matt Bragg is a Director of IRIS FMP, one of the worlds leading payroll software suppliers for SMEs. Hes also a commentator on HR and payroll, and a thought leader on digital working and employee engagement.