Setting wage levels is a critical aspect of managing human resources effectively and ensuring the long-term success of your business.
It’s an important task at various times in business, including when you first start out, when hiring new employees, during annual reviews, when you’re expanding or restructuring and if there are shifts in the labour market.
With the right salary ranges, you can attract and retain talent, motivate staff and control your labour costs. Wondering how to establish salary ranges for your business? It’s definitely both a science and an art. Due diligence is a must!
Salaries are grounded in fair work
Here in Australia, employment relationships are built on the principles of fair work, governed by the Fair Work Act 2009.
At the centre of it, are the National Employment Standards (NES) that serve as a benchmark for minimum employment conditions you must meet as an employer. They include provisions for the following:
- Minimum wage
- Annual leave
- Personal leave (including sick and carers)
- Parental leave
- Long service leave
- Public holidays
- Notice of termination
- Redundancy pay
It’s important you familiarise yourself with the fair work principles and relevant awards as they apply to your business and industry and that you comply with minimum wage requirements.
The PACT (Pay and Conditions Tool) is a handy online resource provided by the Fair Work Ombudsman that enables you to calculate pay rates, determine minimum entitlements, penalties and more.
Calculating a salary range
While there is a minimum wage, the actual salary paid for a wage level, including hourly wages, is entirely between you and your prospective employees. Wage levels are calculated using position importance and skill requirements as criteria. Here’s what you need to do.
Perform role analysis
Carry out a thorough job analysis and collect job evaluation data for each position to determine its responsibilities and required skills and experience. You can do this by reviewing individual job descriptions.
We also recommend using a job evaluation method to determine a position’s relative value in your business compared to other roles. This can involve assessing things like complexity, impact and required skills.
Look at the market
Research salary benchmarks for similar job roles in your industry and geographical region using sources like salary surveys, industry reports, and online resources. Being in a city typically commands higher rates of pay due to the cost of living.
Here are some online resources to look at:
- Salary Comparison Tool – A simple tool by recruitment company Michael Page that allows you to type in a job title and see the average salary for that role in Australia. They also publish an annual Salary Guide.
- Explore Salaries – Online tool by SEEK that lets you compare what you’re paying for a certain role with the average in Australia. Also, take a look at their resource, A Guide to Salaries in Your Industry.
Set your salary budget
Determine your business budget for salaries, considering factors like revenue, profitability and other operating costs. Note that salaries generally make up the greatest proportion of your expenditure budget.
Knowing what percentage of your budget should go on payroll will help you stay on track. This varies greatly and can be anywhere between 15-50%, with the more labour-intensive industries like hospitality at the higher end.
When setting your salary budget, be sure to factor in new positions that may be required as your business grows. This foresight will help ensure you have the necessary funds to expand your team when needed.
Talk to your accountant about the most current practices, cost ratios and profit margins in your industry.
Create a pay scale and salary ranges
Develop a salary structure that includes salary ranges for different job levels or grades within your business.
This structure should consider things like experience, education and performance (already determined). Ensure that your pay scale promotes pay equity by offering fair and equal pay for equivalent work.
Here’s an example of what a salary structure might look like:
| Grade level | Minimum salary | Midpoint salary | Maximum salary | Job titles |
| 1 | $40,000 | $50,000 | $60,000 | Entry-level roles |
| 2 | $50,000 | $60,000 | $70,000 | Junior positions |
| 3 | $60,000 | $70,000 | $80,000 | Mid-level position |
| 4 | $70,000 | $80,000 | $90,000 | Senior positions |
| 5 | $80,000 | $90,000 | $100,000 | Executive positions |
With this as a base, you can set salaries based on individual factors while ensuring they’re consistent within your organisation, competitive and aligned with your business goals and market conditions.
Related: How to manage staff retention and labour costs
Consider total rewards and benefits
Take the complete employee benefits package into account. This includes non-monetary perks like employee assistance programs (EAPs), training and flexible work arrangements.
Make sure you assess the total value of rewards to attract and retain quality employees while maintaining fair, competitive pay rates.
Communicate openly with employees
Once you’ve determined your salary ranges, it’s important to maintain open and transparent communication with your employees around pay rate policies, processes and the factors you consider when working out and reviewing your levels.
If any concerns or questions arise, deal with them promptly. And always strive to be fair and consistent in your wage level decisions.
Review, adjust and consider your other financial responsibilities
Setting salary levels certainly isn’t a set-it-and-forget-it exercise. We recommend you establish a regular review process to assess the effectiveness and competitiveness of your rates.
You should always aim to stay updated with any legislative changes, market trends or industry developments that might impact them.
When looking at wage setting, also consider your other financial responsibilities, including withholding taxes from all wages and salaries, making superannuation contributions and complying with workers’ compensation requirements.
Related: Everything you need to know about paying superannuation
If you need help in creating salary ranges for your business, reach out to your Maxim advisor or contact our team today.
