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Paying your people

Tips to maintain fair pay for all your employees

Employers know how terribly expensive it can be to replace employees who can easily leave for lusher pastures in today's highly mobile economy. So how do you retain good people? I don't have a magic formula; however, here are five guidelines that can help.

1. Be Aware of What Individual Employees Want

What's going to be important to employees depends at least partly on their own background. John McConnell, a human resource management consultant and author of Hunting Heads: How to Find and Keep the Best People says there are some general rules holding true for many workers:

If you're hiring part-time workers, including college students and spouses looking to generate a second income, they're more inclined to want flexible working hours and an hourly pay scale.

Full-time employees care about pay, of course, but a benefits package and prospects for overall security and advancement within a company are also going to make a big difference in terms of job attractiveness.

Health insurance, health insurance, health insurance. "If you have to generalise, I'd say you start with health benefits in terms of importance of benefits, unless you're talking about college students who think they are immortal anyway."

2. Make Sure Employees Know the True Value of Their Compensation

One key to retaining employees is making them aware of the value of the package you offer. I've seen year-end statements from employers that include not just the wages paid and taxes withheld, but also the value of employer-paid health insurance, sick leave, dependent care benefits, retirement plan contributions, worker's compensation payments, unemployment insurance and other aspects of the overall benefits package.

3. Cover your Legal Bases

James P. McElligott, a specialist in employment law and employee benefits issues emphasises that your overall package be in compliance with "the legal and accounting rules that apply to your business' compensation system. Again, you don't have to be an expert generally, but make sure you consult with someone who is an expert."

4. Check Out your Competitors

Local business organisations, chambers of commerce and trade or industry groups can all be sources of information about compensation trends and standards. "Don't immediately go out and hire expensive experts," McElligott says. "Look first at community groups that collect information either formally or informally; look at the help wanted ads; look at professional associations.

Even people in the same business as your own can be good sources of information. "If they don't think you will be a direct competitor, other employers in your field are often very helpful," McConnell says.

5. Fouled Up? Here Are Paths to a Fix-Up.

If you have to consider hiring a new employee for significantly more than what you're paying a present employee to perform the same tasks, you've got a problem.

McConnell says there's no easy solution. "If you're bringing someone in for more money than what you pay others, then you obviously haven't been paying the current market rate," he notes.

The initial response of some employers is to try to sit down and review their overall compensation system and increase the salary or benefits level of current employees.

"But that may not solve your problem, even if you can afford the higher salaries," McConnell says. "You are just as likely to have your current employee come back and say, 'Well, I have been here for X number of years and I should be making more than this new hire, not only as much as he makes.'"

One solution: Put the new hire on hold and instead review your company's overall pay structure and job responsibilities first.

"You may realize you cannot afford to hire this new person because in filling one slot you might do so much damage to your relationship with current employees that you lose two or three other people," McConnell says. Don't forget that the most valuable employee you have is sometimes the one already in-house, he says.

"In a lot of cases we see, the business owners find after doing a lot of review and footwork that they don't immediately need another person if they reorganise some job duties," McConnell says. "If they are able to give higher responsibilities and maybe even higher pay to people who are already with them and who already are committed to the business, they can avoid making an immediate hire. Then, down the road, maybe they can hire a junior person instead who won't be coming in at a high pay level and won't disrupt the company's existing compensation structure."

What next?

Paying employees can seem like a big administrative burden. Our Guide to Overcoming Bureaucracy and Regulation has a whole section on making PAYE painless.

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