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How to price the salary of a new team member

Knowing how to work out a pro rata salary sounds tricky but it needn’t be. When you need to calculate employee salary, this article is for you. We look at the ways for calculating salary for new staff plus rates for full or part-time workers.

For tradespeople, as with all businesses, knowing how to work out an hourly rate or calculate employee salary can take lots of considerations.

As well as how much you pay, you’ll also need to think about how much tax employees pay.

How to calculate an employee salary

Your trade business is likely to be specialised in terms of the services you offer. That can make working out a pay rate difficult.

But there are some general pointers to help you work out a pro rata salary. The same applies to how to calculate pay per hour.

Look at the bigger picture

You may want to know how to work out a pro rata salary for a new joiner or part-time worker. You may also need to have an answer when current staff ask you: “What’s my market value salary?”

For starters, you shouldn’t decide on how to calculate employee salary in isolation. After all, if you have lots of staff the amounts you pay are affected by each decision you make on salary levels.

Think about:

  • Age: National Minimum Wage/National Living Wage
  • Type of employment: full-time, sub-contractor, or apprenticeship
  • How long they have worked for you
  • Their experience, including qualifications and their responsibilities in your business, for example, if they are in charge of other people
  • How competitive your business is – which impacts your ability to attract the best people
  • Whether your business is a niche trade – if you’re in demand you can charge customers more and pay staff more
  • What are local and national pay rates for the role?
  • What are the minimum pay levels for the role?
  • Government employment incentives and schemes, like the apprenticeship schem

Boss and construction worker reviewing the project paperwork

How to work out a pro rata salary

This usually applies when you pay someone who only works for you part-time. You work out what you would pay them if they worked full-time. You then pay a proportion of this based on how many hours they work for you.

The phrase means ‘in equal portions’. That’s exactly what you are doing with the amount you pay an employee

It helps you to pay them a competitive salary, at the going rate. You’re just doing it across fewer days than on a full-time basis.

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You calculate employee salary based on pro rata or hourly rate for various reasons. They include:

  • Taking on new staff who join you during the year
  • Promoting staff in the middle of the year as they will have two different pay rates
  • Giving pay rises
  • If staff take time off work outside the usual holiday periods
  • If staff change their working hours and days, for example, working fewer days per week

Example of a pro rata salary

  • A job role pays £1,000 per week for a 40-hour week
  • The hourly rate for the job is 1,000 divided by 40 hours = £25 per hour
  • An employee works a 30-hour week
  • Their pro rata salary is 30 multiplied by £25 = £750 per week

How much tax employees pay

As an employer, you are probably responsible for working out and paying staff income tax and National Insurance. When you look at how to calculate a pro rata salary or how to calculate an hourly rate, bear in mind the tax position.

Calculator working out employee salary

Three ways to decide how much to pay employees

Market rate

Market rate will give you a good idea of the comparative salaries. These are other tradespeople in the same field of work, at the same level and 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 job sites such as:

Another way to find out the market rate for a particular position is to check out the job board sites for your industry. 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.

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Impact on your net income

When you calculate a salary, you need to think about how the cost will impact your business profits. This comes down to putting a value on the work they do for you.

Work this out by looking at:

  • How long they spend on jobs compared with colleagues
  • Have they boosted your business in other ways, like helpful suggestions to improve efficiency
  • Have they saved you money, perhaps by sourcing materials for jobs at a lower cost?
  • Have they brought in new business, for example, referrals from happy customers or family and friends using your business?

Keep a record of all these things

It will help you calculate an employee salary that reflects their true value to your business.

When all’s said and done, salary is why we all come to work. If you want to keep your top staff, who make your business successful, then reward their efforts fairly.

  • Set pay scales so you are fair to all your staff
  • Review pay scales regularly

When you look at how to pro rata a salary for a new joiner it’s a great time to review all pay levels. You should do this at least once a year. As well as looking at market rate, consider things like the cost of living, national averages and employee expectations.

Take on staff as you grow your business

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Using an employee salary calculator

Dedicated tools can be a good way to calculate employee salary. They can also help you calculate how much tax that will need to be paid.

Work out gross weekly pay by:

  • Deciding on the hourly rate for the job role
  • Multiplying the number of hours worked per week by the employee’s hourly wage

There are salary calculators that you can try online. For example, by The Accountancy Partnership, this one from The Salary Calculator or this one from SalaryBot.

When you’re looking to calculate take-home salary after tax, National Insurance, student loan, and pension contributions, you will find that using a dedicated tool to calculate employee salary very helpful.

Once you’ve worked out the salary you need to pay, you can decide if it is more cost-effective to subcontract the work rather than hire a full-time employee or apprentice.

Grow all aspects of your trade business

Paying your people the right amount is just one aspect of running a trade business. There are many dimensions to finding profitable work.

We help tradespeople in lots of other ways by offering a range of benefits. They include:

  • Dedicated membership advice team
  • Work guarantee up to £1,000
  • Exclusive offers and discounts
  • Up to 20% off Public Liability Insurance
  • Reduced cost of workwear and branding
  • Savings on other business essentials such as vans, fuel and materials

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 your trade business. Their value includes things like their quality of work, value for money, and whether they bring in new jobs. Compare what value they bring to your business with people working in similar roles.

How do you work out monthly salary?

A monthly summary is usually one-twelfth of an annual salary. Decide whether you want to work out the monthly salary gross (before tax deductions) or net (after making tax deductions).

How to work out an hourly rate from a yearly salary?

First, look at how many hours an employee is contracted to work for you in the year. Then, divide the annual salary by the number of hours. This will give you the hourly rate from a yearly gross salary. Remember deductions for tax and National Insurance.

How to work out a pro rata salary?

This is a way of calculating the salary for someone who doesn’t work full-time but you want to pay them the same rate. It also applies to people who start working for you during the year. They won’t have worked a full 12 months for you in their first year. You need to work out their hourly rate, then multiply by the number of hours the person actually works. This will give you the pro rata salary.

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DISCLAIMER
This is information – not financial advice or recommendation. The content and materials featured or linked to on this blog are for your information and education only and are not intended to address your particular personal requirements. The information does not constitute financial advice or recommendation and should not be considered as such. Checkatrade website is not regulated by the Financial Conduct Authority (FCA), its authors are not financial advisors, and it is therefore not authorised to offer financial advice. Always do your own research and seek independent financial advice when required. Any arrangement made between you and any third party named or linked to from the site is at your sole risk and responsibility. Checkatrade blog and its associated writers assume no liability for your actions.

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