How Much Should You Pay Employees? A Complete Guide

Did you know that 82% of small businesses that fail do so because of poor cash flow?

Let’s face it, running your own business and paying employees on top of that is not easy. You have to figure everything out on the fly as a new entrepreneur while keeping the lights on for your entire company.

One of the toughest decisions is figuring out what to pay employees while being fair to them and to your business.

But, what if there was a way to keep happy employees while having fair employee wages from your perspective?

This is a guide for how much to pay them.

Determining Budgets

There are multiple budgets that you need to determine before you can get a good idea of what you need to pay each employee.

The first budget is your overall business expenses in a certain period of time. You need to come up with an outline for how much total money you have to spend on the business, and then dedicate a certain percentage of that money towards paying your employees.

In most small businesses, this can be expected to be about 40% of your business expenses but it can vary depending on your industry.

Then, the second budget would be how much money you are going to dedicate to each position and how many people you need in each position.

Let’s say that you are an office that has about $250,000 to dedicate towards employee salaries. You might need a secretary that takes about $30,000 then a salesman that takes about $90,000 and an accountant that takes up $80,000.

On top of that, if those employees worked for you full-time, you would need to allocate some money towards benefits such as health insurance, 401K, and more.

Payroll Organization

The next thing that you need is to be organized with your payroll books so you know exactly how much you are spending on your employees. Luckily, in the modern age, this is easier than ever with a payroll service like in the link there.

Having a payroll service not only helps you keep track of how much each one of your employees is getting paid but it also gives you a chance to evaluate the investment you are putting into each employee to give you a better idea of if that employee is worth the salary or not.

Industry Standard

Finally, a good way to get an idea of how much you should pay an employee is to figure out what the industry average is for that position. Then, you have the option to go a few ways with this.

You can try to offer a little above average to try to get better talent or offer below average to have high turnover but cheap salary as the benefit. You would need to decide what model works best for you.

Pay Employees Right

At the end of the day, a lot of small businesses fail because of cash flow problems, and the way they pay employees is part of that. You need to use the tips above to make sure that does not happen to your business.

For more information, go check out other Startup articles in our Business section.