skip to Main Content

Placing the Right Value on Labour

Congratulations!  You got your new business licence and you are ready to start hiring.  Oh dear, now you have to decide what to pay your staff.  How do you do that and make it both fair to your employees and still keep yourself profitable?

Don’t rely on national surveys

You may hear what trends are in your industry and think that should guide what you pay your own staff.  It can be a guide, but it should not be your sole tool.  Look at what your rivals pay, and be willing to be competitive. This may mean you need to pay a bit more to attract high calibre people, but here is something to consider – people who are happy in their job are more likely to stay, and study after study shows it is more expensive to hire an employee as compared to keeping an existing one.  And, a higher paid, more highly skilled employee is likely to contribute more to your company.

Balance your payroll

You shouldn’t pay more than about 38% of your gross income in payroll.  Going much higher than that will just cause you to struggle financially.  And remember, payroll is more than just the wages you pay your employee – factor in any taxes you must pay on their behalf, as well as insurance benefits, vacation pay, and retirement plan payments as well.

Be creative with pay

That might sound confusing, but there are multiple ways to pay people their income. Does it make sense to offer commissions, or pay by the hour?  Or, does your job really make more sense to pay someone a straight salary? For those who do work that is based on how long it takes, hourly makes the most sense, like an electrician.  If, however, you run a sales-based business, perhaps a commission-based income makes more sense for you.  The more they sell, and therefore the more income they derive for the business, the more they can make.  And of course, the converse is also true. In that case, you end up not having to pay as much in salary when you suffer a slow month.


When a team can come together and achieve some great results, it makes sense to offer incentives like bonuses or additional time off. Bonuses, of course, only make sense if the results were actually achieved. Just paying a holiday bonus because cheapens the effect and does not serve its intended purpose.

Allowing employees to telecommute can put more money in their pockets by saving on the expensive commute, and you still get their productivity. Even fun things like jeans day Fridays can be one way to provide employees a reason to work for you that don’t have to cost a lot.

Ultimately you are the one who knows your business best.  Using tools to guide you can be helpful, but remember to use them as just that – a guide.



Finance Expert, Writer, Entrepreneur

Tammy Richards is a passionate finance expert who is also a writer and business owner. With over 10 years of experience as a finance expert, Tammy wants... read more

Like it? Share it!