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In order for a business to be successful, it needs to have a comprehensive pay structure in place. For those setting up a new business or looking to make things more organised within their current business, establishing a pay structure is one of the first steps that should be taken. 

Designing a pay structure can seem complex if you have never done one before, but there is an easier way to go about it.

How to design a pay structure

The process of designing a pay structure can be broken down into five rough steps, but before you can begin those, you first need to analyse what type of pay structure you want to implement.

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What are the different types of pay structures? 

There are four main pay structures in the UK. They are:

  • Individual pay ranges
  • Broadbanding
  • Pay spines
  • Job families

Individual pay ranges are the most common type of pay structure. Essentially, companies give each employee a pre-determined pay range based on their individual job role. This means a bookkeeper and an administrator will both have their own pay ranges unique to their job roles. Employees will have a clear idea of what their roof salary is and how they can get there. Where a pay range isn’t applicable, an individual pay rate will fall into this bracket. This is when each job role has its own salary, although the absence of a pay range makes it almost impossible for an employee to earn more unless they get a promotion. Depending on the sector, however, this could work well.

Broadbanding is a pay structure that loosely groups similar job roles together and puts them together on the same pay range. Typically, every employee starts at the bottom of the relevant pay range and has the opportunity to move up incrementally until they reach the top. At this point, they may get a promotion and move to the next range which could be a managerial scale that works in the same way.

Pay spines are simple in nature and involve entire companies operating on the same incremental pay structure. Moving up the ladder usually comes as a result of loyalty, with the advantage of this being that employees can clearly see their next salary steps, and this could encourage loyalty.

Job families are a combination of the above pay structures. They group together similar roles that fall within the same department, but pay increases are determined based on experience and knowledge. This means a marketing assistant and a marketing manager may be grouped in the same job family, but the salary of the marketing manager will be higher based on the fact it’s a more senior and experienced role. Despite this, employees can see opportunities for progression clearly, and there’s plenty of scope for them to work towards.

Designing a pay structure

Once you’ve picked which pay structure will work best for your company, you can then begin designing it. As mentioned, there are five main steps you need to complete to do this, and they are as follows.

  1. Calculate your overheads

Before you can determine salaries, you need to figure out what your other overheads and expenses are. This means looking at how much money it costs you to produce a product or carry out a service compared to how much money you make from it. You should also factor in general utilities and bills such as rent and insurance. When you have this worked out, you can determine how much money will be left over for salaries.

  1. Set out relevant job positions 

As most pay structures rely on specific job roles, you need to ensure you have a comprehensive list of all the job roles within your company. If your business is one that is loose with job roles, it’s worth looking at implementing some formality and defining them clearly. This will not only help with determining a pay structure, but it will also clarify what’s expected of your employees, too.

  1. Analyse pay across the industry 

The third step in designing a pay structure is to analyse pay across your industry for each job role you have laid out. This can be done based on your own research, or, for a more realistic idea, you can use Paydata’s salary benchmarking tool to ensure what you are offering is fair and competitive. This may mean holding a pay review, but doing so is integral for creating a professional pay structure that compensates your employees in-line with your competitors.

  1. Check other perks/benefits

You will now want to look at other benefits on offer to your employees. For example, you may have a junior position within your pay structure who not only earns a salary, but who also benefits from free tuition courtesy of yourself. Any additional costs such as this will need to be factored into the pay structure design.

  1. Check the numbers 

The final step in designing a pay structure is ensuring your numbers tally up. Ideally, you want to ensure the salaries you have come up with fit within the budget initially set out from the overhead calculations. If not, you may need to take another look and tweak figures for certain roles.

How Paydata can help

Designing a pay structure is not the easiest thing, especially for large companies. The Paydata team are experts on assisting with pay reviews and structures. For more information and advice, please contact us.

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