How Much Should I Pay My Employees?

Employee compensation can be tricky, especially as modern work responsibilities are shifting to rely more on remote duties and less on in-office tasks during the coronavirus pandemic. However, workers are demanding to see better pay and benefits, meaning that companies will need to get comfortable with catering to those demands if they want to stay competitive. 


In this post, we’ll explain how business owners and leaders can plan for higher employee salaries, break down emerging trends in worker compensation, and the benefits that can come with offering higher pay to workers. 


Setting employee salaries begins with your budget 


Employee compensation can likely be your biggest business expense – expect it to take up somewhere between 40-80% of your overall budget, according to NerdWallet.


Remember that employee compensation includes more than employee salaries. Managers will also need to factor in taxes, benefits, overtime, paid time off, and reimbursements for things like work-related travel and supplies. Also, consider the cost of onboarding a new employee and your ability to offer raises in the future. 


Once a business has an overall budget for employee salaries, managers can begin setting salaries for specific jobs. Salaries vary widely across the board. Consider salary averages in your industry, job duties that require special skills, cost of living in the area, and of course any labor laws that need to be followed


Pinpointing the appropriate salary can be challenging, especially for employers who do not have a dedicated HR team or lack access to reliable salary data. 


The Society for Human Resource Management compiles data from and sells detailed salary research for more than 15,000 specific job titles for $245 per report. Managers can also explore online salary data free of charge on 


Employee compensation on the rise during COVID-19


Despite the challenges many of us faced during the coronavirus pandemic, workers are earning more on average in 2021 than they were a year ago. 


In June 2020, civilian workers made an average of $38.20 per hour – workers earned about $26.17 per hour in wages and $12.04 per hour for benefits, according to data from the U.S. Bureau of Labor Statistics


Private industry workers made slightly less at $35.96 per hour, with salaries accounting for 70% of employer salary costs and benefits accounting for 30% of employer salary costs. 


By June 2021, the BLS reported civilian workers were earning an average of $38.91 per hour – wages were up to $26.85 per hour on average and benefits were up slightly to $12.06 per hour. 


Private industry workers made an average of $36.64 per hour, with salaries accounting for 70.6% of employer salary costs and benefits accounting for 29.4% of employer salary costs. 


Economists say workers are seeing the largest pay hikes since the early 1980s.


Some industries are seeing steeper pay hikes than others, particularly leisure and hospitality, where salaries have increased at an annualized pace of 6.6% over two years, The Pittsburgh Post-Gazette reported


Here’s why you should consider paying employees more than average


Though worker compensation is on the rise across the board, many jobs experts believe companies should offer higher-than-average compensation to remain competitive. Here’s why:


  • High salaries make it easier to attract top-tier job candidates


As the world returned to somewhat normal in 2021, businesses were forced to come to terms with the fact that they’d need to offer salaries that entice people back into the workforce. More and more workers now refuse to take a job that only pays minimum wage, and quality job candidates know they deserve compensation for the extra skills and experience they bring to the table. 


David Autor, M.I.T. professor and co-director of the M.I.T. Task Force on the Work of the Future said in a New York Times op-ed that COVID-19 has created a fundamental shift in the way workers view and value their time. 


“Americans are less eager to do low-paid, often dead-end service and hospitality work, deciding instead that more time on family, education and leisure makes for a higher standard of living, even if it means less consumption,” he wrote. 


That means workers are no longer willing to bend over backward for jobs that are not compensating them enough for their time and are instead content with staying out of work longer if it means avoiding a job that undervalues them.


  • Workers who are paid well will be motivated to perform well


Compensation is a key factor that job applicants consider before accepting a position, and how they’ll view their jobs in the future. 


Workers who receive fair compensation will simply be more likely to perform well at work if they’re not worried about their personal finances. Before the pandemic, CNBC reported that nearly a third of American workers had a side hustle just to pay their bills. That meant about 12 hours of extra work each week to bring in about $1,122 more per month. 


In 2021, workers are still worried about making ends meet, but less willing to juggle multiple low-paying jobs. Over the coming months, workers will certainly worry about emerging coronavirus variants and rising consumer prices tied to inflation. Child care has also become more difficult and expensive for families to manage as schools juggle COVID-19 outbreaks and daycares struggle to stay afloat. 


Companies that offer high compensation make it easier for workers to focus on their duties and be productive at work, giving businesses a better return on investment than they would see by keeping salaries low. 


  • Employees are less likely to leave a high-paying job


In 2021, companies are having the hardest time retaining their mid-level employees, according to Harvard Business Review. Researchers found that from 2020 to 2021, employees between 30 and 45 years old began turning in letters of resignation 20% more often than they were in the past. 


Losing mid-level talent can take a toll on an organization, with leaders forced to promote lower- level employees before they’re ready or compete for workers in a challenging period for hiring. 


Employees who make enough money at work will have a harder time justifying abrupt job changes than employees who simply don’t make enough to justify staying. After all, an employee that leaves a job will be competing alongside other top-tier candidates who are also seeking greener pastures. Well-paid workers are less likely to consider that a worthwhile risk to take.    


Business leaders should also understand that better employee retention reduces knowledge loss that comes with high turnover rates. That means managers can spend less time recruiting and training new talent and focus more on how to help the organization become more efficient. 


  • Your business could save money in the long run 


We already know that employee salaries make up the bulk of a business’s budget, and pay increases can quickly begin to affect other areas of the budget. However, business leaders need to consider the long-term benefits of creating a community of well-paid, talented workers. 


Since higher salaries make attracting and retaining top-tier employees easier, your company may be able to operate just as efficiently with fewer employees.


Autor, the MIT professor, argues that higher salaries can spur companies to automate lower-level jobs, freeing up workers to complete more complex tasks. This often means that companies will need to invest in training opportunities for workers, making workers more valuable to the organization over time. 



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