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5 Tips on Setting Fair Wages for Small Businesses

The question of salary in a small business often proves a fraught issue for both employees and employers. While the Fair Labor Standards Act provides some basic ground rules, it’s more about establishing minimums rather than guidance on setting fair wages. That leaves employers and employees in something of a no man’s land on the subject of compensation.

Making the problem even more complex is that location can dramatically alter what is fair in terms of wages for staff. Fair in Los Angeles won’t necessarily translate as fair as in Cleveland. If you’re struggling with the wage question, keep reading for five tips that will help you set fair wages for your small business.

1. Consider the Job

The exact duties of the job will bear on how you set wages for staff. If you run a fast-food joint, you’ll likely pay most employees the local minimum wage.

If you’re looking for someone with actual skills, such as a bookkeeper, you must expect to pay more. You’ll also want to take some time to consider your wage and hour policies.

2. Consider the Local Market

When setting yearly salaries or hourly wages, you must take into account the local market for any given position. While you’ll typically see some wiggle room, most positions will reflect a fairly standard level of compensation where you operate.

The position you advertise must typically match the average salary or wage if you want to attract relatively competent employees.

3. Negotiating Bounds

Even small businesses occasionally need someone with specialized skills. For example, a high-end restaurant needs at least one top-shelf chef. You can expect some negotiation on salary with positions like that.

You must go into the negotiation with clearly established bounds on the salary you’ll pay. That means you decide on a hard bottom salary and a hard top salary based on local and industry norms.

4. Discussion

It might feel a little counterintuitive, but you also try discussing salaries with employees. Don’t promise anything, but ask them what they think fair compensation would be for their position. Then, ask them why.

You might get some insights you didn’t expect if nothing else.

5. Employees and Contractors

Employees and contractors occupy two very different places in most small businesses. You must deal with a lot less overhead in terms of admin and paperwork with contractors, who typically manage their own taxes and health coverage. That means most contractors will expect a higher hourly wage or better salary than a comparable employee.

Setting Fair Wages Takes Effort

Setting fair wages isn’t something you can do by instinct. There are simply too many factors at play.

The local market can push wages or salaries much higher than you think is reasonable, but you must still match them. The skills someone must possess to do a job can push up their salary demands. Even whether someone is a true employee or contractor can alter what is a fair wage.

Looking for more tips on salary or business management? Check out our Business & Finance section for more articles.