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Managing employee pay as a small business owner

There are a lot of different ways to start a business. Whether it begins as a side hustle, or is a planned, full-time transition. Sole traders who grow a business to a size that requires a little more help can mean finding a part-time intern to hiring employees for different roles.

A group of people having a discussion over a table with laptops

Hiring is a time-consuming process that can be considerably more difficult than many might anticipate. Finding the right person or people to help to grow and develop a business you have launched can be sensitive and difficult.

There are some great guides available out there for help with hiring. Take a look at our article ‘Hiring - the right way!’ for some great tips on everything from the job ad and reviewing applicants to interviews and making the right choice for your business.

Before you hire employees

Don’t forget that hiring employees involves other obligations when it comes to your business. Some important things to consider are compensation, insurance, healthcare, business structure, taxation, etc.

One of the major parts of hiring is pay. It’s crucial to take some time not only to determine a compensation amount that your business can afford, but one that is also appealing to potential employees. Putting out an ad for a minimum wage position might not result in the best qualified candidates.

There are a few places to start when it comes to researching and deciding on proper employee compensation. These include:

  • The budget you have available. This goes without saying - you need to have a clear understanding of your business finances in order to determine what is available to go towards hiring an employee.
  • The current industry rates. Do you have an idea of the general range that competitors are paying for similar roles? Do some research in what is considered a competitive rate for the particular role and your business industry.
  • Legal obligations for employee compensation. There are legal requirements that must be met - for example a minimum amount as well as payment frequency, etc. It’s good to have an understanding of how often you will be paying the employee.
  • Holiday pay/sick leave/etc.: Once you become an employer, it’s necessary to consider these kinds of basic obligations as well. How will you handle them in your contract and budget?
  • Pay expectations of employees: If they already have experience, they likely aren’t looking for a reduction in pay. Gaining an understanding of what employees actually expect to be paid can be a big help in coming up with a good offer.

These are just a few of the main things to consider when it comes to figuring out what you can and should be offering your first employees.

Two people shaking hands, potentially agreeing on a salary for a new employee

Keep in mind that there can be other forms of compensation beyond a standard wage or salary. For example, many businesses offer bonuses based on performance, reimbursement for particular expenses, company shares, use of a company mobile/computer, extra holiday time, etc.

Consider whether there is a potential for additional ‘perks’ that you could offer to employees to make the position in your business more appealing to qualified applicants.

After you hire employees

Once you find the right person or people for your team, what’s next? Getting them set up with the different software, tools, and systems that you use in the business are crucial for what they will then be able to contribute. However, what about what they receive from you?

There are a number of things that you need to consider when it comes to compensation. As a small business owner, it is legally required that any employees are compensated for their work. It is your responsibility to ensure that you have taken the necessary legal and regulatory steps in moving from self-employed to employer.

How you pay your employees

There are two main options for paying employees: a salary or an hourly wage. You’re likely already familiar with these, but let’s take a quick look at what they mean for you as an employer:

A salary is an agreed-upon amount in a set pay period (a year, most commonly) that is paid out typically in monthly installments. Salaried positions are not generally tied to the number of hours worked. Overtime compensation is an additional consideration that some businesses might take.

A wage is an agreed-upon hourly amount that is paid out usually bi-monthly or monthly, corresponding to the number of hours worked.

There are a variety of different ways to actually distribute the payments, however, arguably the most common method today is by bank transfer or direct debit. This allows for a certain amount of automation if the frequency and total are expected not to change over a period of time (for example, a standard monthly salary payment).

A man gesturing towards himself, maybe in a discussion about his compensation as an employee

Keeping records and employee pay

Hiring employees involves gathering a large amount of personal information. This information is included under the GDPR for businesses in or dealing with the EU in any way, meaning that there are clear guidelines around how this data should be handled.

This includes information for making payment to the employee as well as information necessary for tax purposes along with basic contact details.

One you have hired, determined compensation amount and method, you can proceed with putting your employees on payroll. A dedicated payroll system can help with this, but in any case it’s important that you maintain thorough records of employee payment.

In online accounting & invoicing software like Debitoor, salary and wages can be easily added as an expense, with the correct category suggested automatically.