Paying Your Employees Enough? Dave Ramsey Weighs InHow to figure out the salary sweet spot for your small business.
Your employees play a big part in helping you build a winning business. Compensation plays a big part in keeping them happy and wanting to do their best for you.
“What an organization spends money on is what they value,” Dave Ramsey, CEO of Ramsey Solutions and author of seven books including “EntreLeadership,” told NCR. “If you value your team, they will know it in a lot of ways, and one of the ways is that they’ll be paid and paid well.”
Pay actually isn’t the number one factor that drives employee satisfaction; that honor goes to “respectful treatment of all employees at all levels” according to a Society for Human Resource Management report.
But respect can’t compensate for pay that’s just too low.
“Recognition, unity, loyalty and communication all start to have muted effects and even appear hypocritical if they aren’t combined with generous pay,” said Ramsey.
If you don’t pay your employees what they’re worth, you run the risk that they’ll move on to more lucrative pastures according to staffing firm Robert Half, whose surveys of both CFOs and workers indicate that poor compensation is the primary reason employees leave their jobs.
In a statement, Robert Half senior executive director Paul McDonald said, “The stronger hiring climate today means employees who don’t feel well compensated may be more willing to look for a new, better-paying job.”
According to small business advisers Second Wind Consultants, while there are no hard and fast rules, in general your payroll expenditures should come to 15 to 30 percent of your gross revenue — or up to 50 percent if you’re a service business. If you spend more, you may be cutting into your profit or spending money that could be used to grow the business. Spend less and your employees might take their expertise elsewhere.
McDonald noted that managers should “regularly benchmark salaries against those of other companies in their region and industry to ensure they are at or above market standards.”
It’s not always easy to know what other companies are paying their employees and therefore how your salaries rate, but these strategies can help.
- Write a job description that’s as specific as possible about duties and responsibilities. True, jobs in small businesses often amount to catchalls of functions, but if you write a description that’s similar to jobs you see advertised, it will be easier to price the job, according to the Small Business Administration. Read local classified ads to see how similar jobs are priced.
- Review industry reports that offer up-to-date information on compensation levels for your industry. Each year, Robert Half, for example, publishes its Salary Guide, with average starting salaries for accounting and finance, administrative, technology, legal and creative professionals. Other salary guides include Randstad and PayScale.
- Refer to the Bureau of Labor Statistics. The Bureau’s Occupational Employment Statistics program gathers employment and wage estimates every year for more than 800 occupations. The latest estimates are available for the nation overall, for individual states, for metropolitan and nonmetropolitan areas, as well as for specific industries.
- Do an online search by entering terms that include the specific job title, geographic location and the words “salary range.”
- Check out trade magazines or websites related to your business. You may be able to find salary ranges and surveys.
- Ask around. Talk to small business owners, your local chamber of commerce, employment agencies and trade associations about what similar businesses in your area pay.
Finally, make sure you’re following the law. The Fair Labor Standards Act establishes minimum wage and overtime pay eligibility. And keep in mind that the new U.S. Department of Labor overtime rule goes into effect Dec. 1. Most white-collar, salaried employees who earn $47,476 or less will be eligible for time-and-a-half pay if they work more than 40 hours a week.
What else can you offer?
Some employees may be willing to give up a bit of pay for other perks that are more important to them, such as flexible schedules, the ability to bring a pet to work or the option of working remotely. Profit sharing, commissions and bonuses can also go a long way toward keeping your employees happy.
“Creativity is key when considering compensation,” said Ramsey.