How to price the salary of a new team member

How do I decide how much to pay my employees?

Whether you want to know how to price the salary of a new team member, or you have current employees asking, “What’s my market value salary?”, it can be tricky knowing how much to pay your staff.

Salaries will vary from employee to employee. Some of the key factors that can influence salary include:

• Age: National Minimum Wage/National Living Wage
• Type of employment: full-time, sub-contractor, or apprenticeship
• The level of that person within the company and the responsibilities of the role
• A person’s experience, knowledge, and skills
• Geographical location

Three ways to help price the salary of a team member

1. Market rate

Market rate will give you a good idea of the comparative salaries of others in the same field of work, at the same level, in the same general location.

Checking the market rate before you advertise for a role will help to make sure your salaries are competitive. You can find this information on sites such as Glassdoor.

Another way to find out the market rate for a particular position is to check out the job board sites for your industry. Be sure to check the location you’re searching within and the responsibilities of the role you’re comparing with to make sure it’s representative.

If you’re using a recruitment agency to hire new staff, they can often advise the market rate for the position you’re looking to fill.

2. Impact on the bottom line

This one is about the value that a current role delivers to your business. In other words, what it’s worth.

Clued-up employees will keep a record of the impact their role has had on the bottom line to help justify a pay rise. If only for this reason, it’d pay for you to track this too in preparation for employee reviews.

Perhaps an employee excels on the projects they’re a part of, helping to deliver them on time and on/under budget. Or they might have been instrumental in pushing forward a new system that’s made your business more efficient. Maybe they’ve saved your business money by sourcing better value suppliers or helped to win new business?

Whatever it might be, keep a record of an employee’s impact and its value to your business so you can justify the salary you offer them at their annual review.

3. Company policy

Some companies choose to have an internal pay scale, which sets out the salary ranges for the different levels within the business. This can help to make sure all employees are being paid fairly, and there’s a clear framework for wage progression.

When deciding on the salary ranges for your business, you’ll need to consider if you will:

• Pay higher than the market average to retain existing employees
• Pay the market rate average to attract good candidates
• Pay lower than the market average due to financial constraints

It’s not uncommon for companies to only review salaries once a year, at the end of the financial year.

Employee salary calculator

To calculate the salary of an employee paid by the hour, multiply the number of hours worked per week by the employee’s hourly wage. This will give you their gross weekly pay.

There are various free salary calculator tools available that allow you to see how much an employee will cost based on the salary you pay them. This can help to determine if it’s more cost-effective to subcontract the work rather than hire a full-time employee or apprentice. Check out this salary calculator from The Accountancy Partnership.

Employees looking to calculate their take-home salary after tax, National Insurance, student loan, and pension contributions will find The Salary Calculator helpful.

FAQs

How do you calculate an employee’s value?

An employee’s value can be calculated by measuring their output or the results they’ve generated for the business. Next, compare this with those in a similar role within the company.