Q:

How does an employer determine employee pay?

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Quick Answer

An employer determines an employee's pay by considering several factors, including the available revenue, the value of the position, current inflation rates and the employee's qualifications. The employer also needs to factor in all relevant payment laws, such as state and federal minimum wages, as well as the pay rate for similar positions at other companies.

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How does an employer determine employee pay?
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Full Answer

One factor that determines how much an employee makes is the company's total budget for employee salaries, which must account for the payment of every employee within the company, including executives. The amount for a specific position typically depends on the amount available for the department that oversees the role, which in turn depends on the amount of revenue that department produces. The employer also assigns a qualitative value to each role that contributes to the final salary, which varies between employers according to personal preference and past experience.

Employers also factor in inflation rates and the cost of living within the area to ensure that the pay rate matches the general expectations and needs of candidates and the market. Similarly, the employer must also ensure that the pay complies with all relevant minimum wage laws. For hourly employees, this typically consists of setting the value at or slightly above the specified hourly minimum rate. For salary employees, the employer must perform the necessary calculations, as per relevant laws, to determine compliance.

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