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How to Determine Desired Salary Range for Your Employees

June 16, 2021

Determining the desired salary range for your employees is a valuable first step of the hiring process. Crafting a salary range gives the employee clarity and ensures new hires are comfortable with the salary and benefits. To streamline salary selection, take stock of the proven techniques for this process.

This article will cover the basics of determining the desired salary range for your employees, and will help you understand the factors that go in to employee salary negotiations (from the employer’s perspective).

Identify Open Positions 

Start by determining which positions you must fill and identify the skills required for those positions. Determine how many hours you expect the person to work. If you are hiring a daycare worker, this number could be up to 60 hours a week, and a company executive would likely only require about 20 hours per week. Calculating this number will give you a target range for the number of hours each position requires. 

Have a Budget for your Desired Salary Range

Next, determine how much you can afford to pay an employee. Review company profit margins. Consider the employee’s position in the company and your salary budget for each employee and their salaries. If you don’t have the budget for the target salary range and employee profile, you may have to reconsider your selection.

Stay Competitive

Once you’ve decided how much you’re going to offer an employee, it’s time to analyze your competition. What are other local businesses in your industry offering employees in similar positions? This corporate analysis can help you stay competitive in a booming labor market. Even if the job at your business is slightly different, take the salary range of your local competitors into consideration. 

Some employers offer a salary range 10-to-20% higher than their main competitors in the area. They hope to attract candidates who are more financially minded than they are focused on the working environment alone. 

Location

Location independence plays a huge part in determining how much people can earn as well. For example, employees in New York City, where rent is high and everyday items such as food and clothing are also very expensive, will require a higher salary than those living in smaller towns across the country.

Rates

There are three scales for determining what an employee should cost: market rates, competitive rates, and below competitive rates. Understanding which one applies in a given situation will allow you to make the best decision on how to proceed with interviews and compensation negotiations to get a desirable outcome. 

Market rates are determined by job postings, surveys, and other relevant sources of information and dictate how much someone could potentially earn in a given position taking into consideration their experience level. 

Competitive rates are based on the salary someone would make in another comparable position that falls into the same market rate category. This rate may be slightly lower than the job posting rate but still competitive for the industry or region.

Below competitive rates are your ideal starting point for new hires who have little experience or require specialized training. 

Taxes

A final note about calculating salary ranges – do not forget about taxes! Make sure that when calculating salary ranges that this expense has been included in your accounting.

Summary

Determine your desired salary range based on all three factors: the general budget set by the company; the market value of the position; and the skills of the applicant. This will help you cover all bases and manage company growth needs moving forward. 

Watch your spending closely. If you find you’re way over budget on a salaried role, it’s time to reevaluate your expectations. Remember: in-demand skills are worth more money. If your applicant has skills that are unique or rare, then they could hold significant value to your business beyond their initial role.

Lastly, remember that once an offer has been made you cannot easily rescind your salary offer. So avoid offering a salary until you have a clear indication of the employee’s potential value to your business. If they’re someone who excites you, make them an exciting offer in response. 

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