Considerations for Paying Employees: What to Know about Setting Wages and Salaries

You cannot successfully run your business without good employees.

And you cannot find good employees without offering them competitive pay.

Employee compensation is more than an expense—it is an investment that, when made in the right individuals, appreciates over time.

The competition for workplace talent has never been more fierce.

As companies compete for employees in a world reshaped by telecommuting and a surplus of vacancies, many are increasing wages.

But they may need to look beyond pay to attract—and retain—top talent.

What You Are Required to Pay Employees

The floor for employee pay is established by federal and state law. Workers covered by the Fair Labor Standards Act (FLSA) must be paid a minimum wage of $7.25 per hour. The FLSA covers more than 140 million American workers. While there are some FLSA worker exemptions, including for tipped workers and certain farm and seasonal workers, most businesses should expect to pay workers at least the federal minimum wage.

Twenty-nine states and Washington D.C. have minimum wages that exceed $7.25 per hour. If you employ workers in these states, you must follow state minimum wage laws. The structure of the amount employees must be paid varies from state to state. Check with your state government or a local employment attorney to make sure you are in full compliance.

How Much You Can Afford to Pay Employees

Establishing a ceiling for employee pay often involves a multifactored approach that takes into account company budget, industry-wide rates, and the value of a specific role.

Type of Role

For an employee in a sales or business development role, a sliding-scale approach might make sense based on how much revenue the employee generates. For positions that do not directly make money for the company, consider the job responsibilities and the value they provide. One way to do this is to think about the resulting costs—direct and indirect—of not having an employee do that job. For example, you may be able to save money by doing the accounting yourself, but if you make a mistake and get audited, that savings can quickly melt away in tax attorney fees.

In-House versus Outsourced

You may not need to hire a full-time employee for some roles. Instead of a full-time accountant, IT person, or developer, it might be more economical to outsource the function, at least in the short term. Keep in mind that you do not have to offer benefits to a contractor, which means you may be able to offer a more competitive pay rate that is still less expensive for your business overall than an employee compensation package.

Establish a Pay Range

Regardless of the position, if you decide to make it an in-house role, try coming up with a salary range rather than a set salary. The range can take into account factors such as the role and its value to your company, the worker’s educational attainment and years of experience, the industry, business size, and job location. Use resources such as Payscale and Glassdoor to assess the competition and establish a minimum and maximum pay range.

Factor in Benefits and Perks

Monetary compensation is the number that typically jumps off the page to prospects, but a well-rounded benefits package that includes health coverage, retirement savings, paid time off, and parental leave can be just as important. Perks such as remote work, flex time, game rooms, and free food can also be attractive, but do not overestimate them or substitute perks for more substantive benefits.

There is a growing expectation among younger workers that their employer’s mission aligns with their own mission and values. Although the term “workplace culture” is a bit vague, fostering a workplace that makes employees feel that they belong, are heard, and are supported by leadership is important to many young professionals who want employers that share their values and priorities in their professional and personal lives.

Changing Salary and Work Expectations

The world of work has changed dramatically in the last couple of years. COVID-19 upended the labor market in significant ways. Even as the pandemic subsides, businesses are struggling to fill vacancies. Many employees do not want to return to the office after being allowed to work from home. Others are hesitant to return to work, period.

Companies have responded by offering higher pay, but money may not be a silver bullet, especially among Millennial and Gen Z workers. More talented workers are leveraging their skills to demand permanent remote work. However, this poses a new challenge for employers because the most coveted workers can now compete globally, not just locally. According to Harvard Business Review, these new work realities are forcing companies to take a more holistic approach to talent management.

Whether you are an employer looking to hire local workers for your business or competing for global tech talent, you must balance numerous considerations. A business law attorney from our office can help you comply with state and federal pay parameters and offer guidance about new hiring laws in a changing labor market.