Most employees may assume that the salary they are paid is simply market-related and that’s it. But there’s actually so much more that goes into establishing a pay grade.
While some businesses tend to wing it when it comes to salaries, this simply does not work for all businesses in terms of organizational growth.
In essence, employee pay grades should work to grow an organization, rather than slow it down. So with this in mind, here’s how to establish the pay grade for an entry level employee.
Steps to Determine an Entry Level Employee Pay Grade
The most important aspect of setting a pay grade is to evaluate a position without an employee in it. This means you are simply looking at what the position is worth to your business, and not what a person is worth.
Essentially, the number on an employee’s pay stub should be the last piece of the puzzle when determining a salary. Check out thepaystubs.com for easy and efficient pay stub generation.
Follow these 5 simple steps when determining an entry level salary:
Rank the Level of Responsibility in the Position
For this first step, you’ll need to look at what an entry level employee is responsible for in the position and how much skill is needed.
Who will the employee report to and how efficiently should they complete their daily tasks? Consider the level of qualification required for the position.
Rank the Position in Terms of Compensation Structure
Once you have determined the level of responsibility for an entry level position, you’ll then need to place it into a compensation structure. Ideally, all positions of relatively equal weight should be classified into one tier of compensation.
Determine Which Pay Grade an Employee Fits Into
In order to determine the exact pay grade for an entry level employee, you’ll need to establish different groups of pay grades within your business. i.e. what each employee is paid at each different level.
Pay grades are established by setting a minimum and maximum pay grade within the company. Keep in mind that a pay range can vary approximately 15-20% from the midpoint of a set salary.
In order to set a pay range that is fair, take a look at listings of company positions, job groups, and current salary survey information.
Research Salary Surveys on the Average Market Rate
As mentioned above, salary surveys are a great way to gauge what is fair and market-related in terms of pay grade.
A salary survey will help you get an overall idea of what other employees in similar positions, industries, and business sizes are being paid. From here, you’ll then build a salary structure around the current ”market rate”.
Remember that structure around this market rate should be built on what an experienced, well-performing employee is paid. An entry level employee would then only receive 75-80% of this market rate.
Regularly Review Your Pay Grading System
Industry and business pay grades are regularly in review, so it’s important to consider how often adjustments should be made. Typically, pay grades within your own business should be reviewed every one-three years.
There is a multitude of discrimination laws that affect salaries, such as the Equal Pay Act, Title VII of the Civil Rights Act, and more. So make sure you’re staying abreast of updates and paying your employees fairly!
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