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How to pay employees fairly

The UK Government named and shamed over 200 employers opens in new window in 2021 that failed to pay the minimum wage to staff, leaving £1.2 million unpaid and around 12,000 workers out of pocket.

The level of pay an employee receives tends to reflect the skills, qualifications, and responsibilities of their role.

With cost-of-living increases and rising inflation, there’s growing pressure on wages.

Paying staff an equitable wage while remaining competitive can be challenging for new business owners, especially within tight start-up budgets.


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Why ensure fair pay?

Ensuring equitable pay can make good business sense, too.

  • Legal requirements for fair pay – Under the Equality Act 2010 opens in new window, men and women must get equal pay for doing equal work. Equal work is either the same, similar, or of equal value, such as requiring the same skills or qualifications. No employee should be paid less for the same job for the same employer because of their gender. Any differences in pay must be justified opens in new window
  • Legal requirements for minimum wage – You must pay the lowest-earning employees of your organisation at least the minimum wage. Employees over 23 years old must be paid the National Living Wage opens in new window
  • Motivated workforce – Paying an equitable wage can motivate staff and increase productivity. It can create a positive work culture and help employees feel valued and rewarded for their work.
  • Attract and retain employees – The average employee turnover rate in the UK is approximately 15% opens in new window. Calculating your employee retention rate opens in new window can help indicate how competitive your business’s pay rates are. With a competitive recruitment market opens in new window and cost-of-living rises, paying employees a fair wage may attract and retain staff.
  • Reduce employment costs – Retained staff can mean you spend less on recruitment costs, including job advertising and time spent interviewing and onboarding new staff.


How to pay staff fairly

One of the biggest challenges for a new business is knowing how much to pay for a role.

There’s often the added pressure of balancing the need to offer an attractive salary with limited funds.

Here are some tips for calculating equitable, competitive pay for a role.


Financial forecasting

Financial forecasting is the first step when reviewing salaries or hiring new staff.

Examine your business’ revenue forecast to determine how much you can spend before deciding on wages.

You don’t want to offer salaries that are too high and then discover that you cannot afford them.


Review job ads

It can be a good idea to research similar businesses and roles to see what others are paying, but don’t just look at one or two as they may be offering a lot less or a lot more than the average.

By examining salaries from various businesses, you can benchmark starting, average, median and top-end salaries.

Doing this will help you create a salary scale aligned to the market and help ensure you are not offering too little or too much when hiring.


Salary surveys

Review salary surveys conducted by recruitment agencies or industry bodies to help you work out equitable compensation for your roles.

Salary surveys provides information on wages regarding different roles in various regions, sectors, and industries.

Reed opens in new window and Hays opens in new window have in-depth salary surveys covering regional and national salary trends.

Trade bodies often conduct salary surveys, too.


Transparent hiring

When hiring it could be a good idea to state the starting salary in the job advertisement.

With fewer unemployed people and the rising cost of living, the job market is competitive.

Being transparent about how much the vacancy pays in job ads can help filter applicants that are not a good fit and gain more applicants than not disclosing a salary or salary range.

Recruitment agency Reed opens in new window found a 27% increase in applicants applying for jobs that disclosed a salary.

They also found that 40% of applicants expressed that salary was the biggest motivator when applying for a job.


Pay reviews

Regular and documented pay reviews can benefit both you and the employee.

Talking about money can be uncomfortable but a pay review offers the chance to discuss expectations, performance, and compensation.

To conduct a successful pay review, consider whether staff are entitled to a pay rise in line with contracts or other factors.

Look too at their performance, though remember to collect data and evidence of this to ensure fair and justifiable decisions about pay.


Compensation and perks

Offering perks and benefits can help retain existing staff and attract applicants to your business.

According to Drewberry’s survey opens in new window on employee benefits, just over 40% of employees would like their employer to offer gifts and rewards such as tickets and discounts.

Top of the list of benefits is flexible working hours, with around half of employees valuing flexible working.

If pay raises aren’t feasible, consider introducing benefits such as:

  • additional holidays and time off work
  • healthcare, such as paid sick leave above statutory sick pay
  • gym memberships or cycle-to-work schemes
  • childcare payments, vouchers, or facilities
  • company vehicles
  • pension contributions above the legal minimum
  • employee events/activities/days out.


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Discover the personal aspects of starting a new business with our free Entrepreneurial behaviour course opens in new window. As part of our Learn with Start Up Loans opens in new window partnership with The Open University, our online course is free to join, delivered by experts and includes a free statement of participation on completion.


Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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