Cost of hiring impacts salary
There are more costs involved in hiring someone than just their basic salary. Here’s a rundown of all the things you need to consider when calculating the cost of hiring a new employee - it could influence what you decide to pay them.
National Insurance - Depending on the employee’s salary and circumstances, you may need to add to the National Insurance contribution, which comes out of their wages.
Pension - If you operate a company pension scheme, this will need to be accounted for, although your contributions are tax-deductible.
Equipment - What equipment will the new employee need to be able to perform their role? Consider not just hardware but also any software licenses that may be required.
Healthcare and other benefits - If you’re considering introducing a healthcare scheme, that will need to be paid for.
Deciding what to pay people
In order to work out an employee pay scale, the first step is to establish a hierarchy in terms of role type within the company. In most companies, this roughly follows the pattern of C-level executives (CEO, CFO, etc), Heads of Department, Managers, and Executives. The pay at each of these levels will vary depending on the level of responsibility and your industry sector.
To get an idea of how much each of these levels and roles should command in terms of salary, have a look at online job boards to see how much companies in your sector are typically paying.
Peter Thiel writes in his books on startups – From Zero to One – that setting your salary as director or CEO is crucial. The CEO salary sets an effective ceiling for others; it’s also more important to keep the C-level salaries in small companies closer to the lower level, as highly dispersed salary levels can lead to the disengagement of a company’s workers.