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Small Business Tips

How much should I pay my employees?

Manasa Reddigari

It's said that you can't put a price on a stellar employee. But the reality is that you have to set compensation for every new hire. Not sure what dollar value is fair?

Read on to learn how much to pay your employees.

What should I consider with employee compensation?

Consider these business and employee attributes when figuring out how much to pay your employees.


Your operating budget above all will determine how much to pay your employees. Small businesses, naturally, have smaller operating budgets than larger businesses. But it's normal to spend anywhere from 40 to 80 percent of gross revenue on employee compensation. That figure would include both salary and benefits.

Fair pay laws

At a minimum, the salary you set for each employee should comply with federal and state minimum wage laws. However, keep in mind that market pay rates are generally much higher than these minimum wages. You usually can't get by paying minimum wage if your goal is to compete with the top employers and attract and retain top-performing employees.


Salaries can vary widely depending on the profitability of the business industry. So, you don't necessarily have to be the highest-paying business in town. If you have the budget to do so, aim to pay at a market salary or higher for your industry.


Experience level is a key factor in determining how much to pay employees. Generally, the more experience an employee has, the higher the salary he or she commands. Can't afford to pay at market rate for an experienced individual in your industry? Rather than slash pay rates, consider hiring someone with less experience. Or, consider hiring a new grad.

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Education goes hand-in-hand with experience. People with masters' degrees command higher salaries than those with bachelors' degrees in some industries. This is because you are getting a person with advanced training and knowledge on a subject that's valuable to the business.


Skills that are relevant to the core mission of your business but hard to find are worth their weight in gold. If an employee has them, he or she normally commands a higher wage than an employee without these valuable skills.

Job function

Employees in different roles command different salaries at most small businesses. It requires a combination of market pay research and value judgments to assess which job functions are most central to the success of the business. Employees who perform these job functions are usually paid the most.


Even employees with the same experience, education and skills can be paid differently in different cities. Major metropolitan areas tend to pay higher wages than certain smaller cities. This is because they have a higher cost-of-living than many small cities. If you live in a small locale, paying on par with businesses in big cities can make you an attractive employer.

Total compensation

Consider compensation as a component of the overall compensation package. For example, you might offer your employees a stellar vacation policy. If this is the case, you might be able to make up for slightly lower salary with attractive perks in another area.

How do I find comparable compensation for employees?

There are a number of web resources you can consult to find out the salaries of employees in comparable roles to the one for which you're hiring. Here are a few:

  • This government-affiliated site compiles wage data for over 800 occupations across the country.
  • This popular salary-finding site provides on-demand salary data and comparison tools.
  • This website provides salary reports and compensation management software.

Consider this salary data alongside budget, business industry, location and total compensation to determine a salary range for every job function in your business. Then, narrow that range depending on the employee's experience, education and skills when compared with other employees in the same role. This will help you calculate a fair dollar figure to pay each employee.

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