How to Figure Out a Pay Scale

Deciding what to pay your employees can be a difficult task for a small business owner. There are many variables that can affect a pay rate, including the local market, the employee's experience, as well as her job description, and any other tasks she may be expected to perform. In addition, small business owners also need to figure out what they will be paying in terms of health insurance benefits for each employee, which can affect the overall budget per employee.

  1. 1.

    See what your competitors are paying. This is the most frequently used method to figure out a pay scale for an employee. Small business owners need to stay competitive, and offering better wages than other companies in the same industry is a good way to attract the most qualified employees. If faced with the issue of not being able to afford the same pay scale as competitors offer, it is often necessary for business owners to come up with other enticements to flesh out a salary.

  2. 2.

    Determine the average pay scale for jobs in your area in your industry. Employees in a textile company located in a small town are going to earn less than their counterparts in large cities, due to the local economy. If the standard of living in your area is low, you can afford to offer lower pay than a company located in a high standard of living area. Find this information by searching local business ads as well as checking with your local department of labor for average salaries in your particular area.

  3. 3.

    Calculate salaries by national averages. Job-related websites offer average salaries for specific occupations. Use these figures as a guideline only; they are not necessarily accurate for smaller towns or depressed local economies. These figures do, however, help small business owners figure out a pay scale based on job title and employee tasks.

  4. 4.

    Decide if you want to offer stair-stepped income. Some industries offer new employees a lower rate of pay for the first six months. Then if they stay on and pass a review, employees can expect a raise. This works well for industries with typical low retention rates for employees, such as nursing home assistants or restaurants. It can also be used as a motivator for employees to do their jobs well.

  5. 5.

    Calculate per-employee cost. In some cases, your operating expenses and sales may dictate how much you can afford to pay your staff. Take the average pay for your local area add in how much you will be paying for that employee's health insurance and any other benefits you plan to offer and determine if the amount is feasible.