Conversations around salary can feel like a minefield for both employers and employees. However, everyone goes to work to earn a living and conversations about money should not be taboo.
As an employer, you have likely wondered how much you should pay your employees or how much you should offer as the salary for a particular role. In this post, we have attempted to demystify the process with a few questions you should consider before you make a decision.
What are the benefits of providing competitive pay?
Many employers make the mistake of paying their employees as little as they can legally get away with. However, we believe this is the wrong approach. There are many benefits to offering competitive pay that will be advantageous to your company in the long run.
Good pay packages help you to attract the best talent. Great employees are in high demand, and they will gravitate towards employers who are willing to pay them generously for their work. Good pay also helps you to retain those employees and keep their loyalty in the long term. When people feel well treated and fairly compensated, they want to do their best and stick around. This means that good pay is also good for overall morale, company culture, and productivity.
What does the law say regarding pay?
There are strict laws around pay in the UK. As of April 2024, apprentices and those under 18 must be paid at least £6.40 per hour. Those aged 18-20 must be paid at least £8.60, and anyone over 21 must be paid at least £11.44.
You can learn more about the various National Minimum Wage and National Living Wage rates on the government’s website.
Remember: these are legal minimums. In some instances, these rates may be appropriate. In general, however, we advocate for paying your employees above these rates if possible.
What does the market say this job is worth?
The value of any particular job is determined, in part, by the current status of the job market. Skillsets or qualifications that are rare or in very high demand will command higher salaries.
Before you decide how much to offer for a particular job, take a look at what other employers are paying for similar roles. You can do this by looking at job boards and LinkedIn, as well as asking colleagues in your network what they pay their employees for similar jobs.
Payscale is a useful tool that offers a free overview of the average salaries for various job roles based on location. You can also pay for a more detailed report if you wish.
Don’t forget to factor in variables such as location (many employers pay slightly more in higher cost-of-living areas such as London), years of experience, and qualifications required.
What are they worth to your organisation?
In other words, how much does your organisation need a particular skillset or role filled and how much of an impact on your operations or bottom line will it have? What will it cost you to have that position sitting empty for weeks or months?
If you are desperate to fill a role or seeking a very specific set of attributes, you may need to pay more to attract and retain the right person.
What can you afford?
It is normal for organisations to spend a significant percentage of their revenue on salaries. According to Netsuite, 15-30% is typical for small businesses, but labour-intensive and service-based businesses may spend as much as 50% of their revenue on salaries.
Before you advertise a role and set a salary, take a close look at your financial position and work out what you can afford to pay.
Are you offering any other benefits?
Salary is tremendously important but it is not the whole story when it comes to creating an attractive offer for employees. Benefits can also make a big difference. The benefits that make sense to your company will depend on numerous factors, but here are some ideas to get you started:
- A generous annual leave entitlement above the legal minimum
- A good pension plan
- Shares in the company
- Mental health support through an Employee Assistance Programme (EAP)
- Private medical insurance
- Wellness benefits such as gym membership
- Free or subsidised further education, career development, and training opportunities
- Free or subsidised meals
- Subsidised transport or free parking
- Subsidised childcare
- Flexible schedules
- Hybrid, remote, or work-from-home arrangements
A word on salary ranges and salary negotiation
We always advise employers to openly advertise the salary or salary range for a particular role. This removes the guesswork, encourages transparency, and saves both you and prospective candidates from wasting time if you are not aligned on salary expectations. It is also an equity and equality issue.
It is now considered normal for new employees to negotiate salary in many industries, asking for more money before settling on a mutually agreeable figure. The problem with this practice is that individuals from more privileged demographics and backgrounds are far more likely to feel able to negotiate. This can further the issue of pay inequality along lines such as gender and race.
As an employer, you have a (legal and moral) responsibility to ensure pay equality in your organisation. Publishing a specific salary, or a salary range along with transparent information about how final pay rates will be decided, helps to eliminate pay disparities.
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