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How to calculate a starting salary

How to calculate a starting salary

5 Mins Read | 24-11-2020
Submitted by Anonymous (not verified) on Tue, 11/24/2020 - 11:02
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You’ve identified that your company requires a new employee. This is an exciting time for you, the team they’ll be joining and the business as a whole. The addition of different skills and a fresh perspective will bring a new dynamic to your workforce.

But before the new hire can start, you have to establish what they should be paid.

There are 9 steps to consider when determining your new hire’s salary:

  1. Hiring Budget
  2. Employment Type
  3. Industry Salary Benchmarks
  4. Experience & Education
  5. Industry
  6. Location
  7. In-demand skill sets
  8. Supply & Demand
  9. Perks & Benefits


1. Hiring Budget

The first step when defining your new employee’s starting salary is to identify what your overall recruitment budget is. Knowing all the potential costs involved will give you a better understanding of what salary you can offer.

Here are some of the questions you can ask your finance department that will help you define your budget:

  • How many new hires does your company plan on recruiting this year?
  • Will there be any seasonal hires?
  • Will you have to pay for job postings?
  • Are there any external recruitment costs?
  • What are the internal recruitment costs? (Talent Acquisition salary, HR Manager salary, etc.)
  • Will there be training and/or onboarding costs?
  • Will there be interview expenses? (e.g. If the candidate is travelling a long distance)
  • Will you have to pay for background checks?
  • Will you have to produce branded content to advertise you are hiring? (Videos, flyers, banners, social media)

2. Employment Type

The next step in calculating your new hire’s salary is to identify their employment type.
Should you use the budget to hire a permanent full time employee or a contractor? Maybe a freelancer even?

One of the key benefits of hiring contractors, for example choosing to use Morgan McKinley’s contracting service, is that all costs are inclusive. This helps you manage your budget more effectively.

Another crucial benefit is that due to the nature of the work, you will find it easier to find contractors than permanent employees. Again, this results in reducing your hiring costs (e.g. instead of paying for a job posting for 28 days, you might only have to pay for 2 days).

If you’ve identified that hiring a permanent employee is what your role requires, ensure you’ve made sure to include costs for “employee benefits” such as insurance, retirement savings plans, paid leave etc.

3. Industry Salary Benchmarks

Now that you’ve identified two crucial factors when it comes to defining a new hire’s starting salary, you can use salary benchmarks to find out what the average salaries are for that role.

An easy way to do this is using our Salary Guide Calculator tool. Once you’ve filled in the fields (job title, location, industry etc.), the tool will show you up-to-date salaries. This is also a great way of understanding how much your competitors are paying.

4. Experience & Education

There is a direct correlation between a candidate’s experience and their expected compensation. The more experience and education you require for your role, the higher the salary will have to be.

You can use our Salary Guide Calculator tool to understand exactly how much more you should be paying based on experience and skills by toggling between experience levels beneath the dial.

5. Industry

Depending on the industry, the salary for the same role or job title can vary vastly. This can be the case, for example, if the job function is highly critical to a specific industry or the industry itself is simply larger than others and thus can offer higher salaries.

6. Location

Location is another factor that can impact the amount of someone’s salary. This is because location also takes ‘cost of living’ into account, hence why you will find that salaries in metropolitan areas are often higher than they are in more rural locations.

7. In-demand skill sets

Skills and particularly highly sought after skills play a crucial role when determining salary for new hires. While job titles can give you an indication of skills and experience level, different companies may be using the same job titles to fill two very different positions.

So, if you are looking for a person with a specific, hard-to-find skill set, the expected salary will be more towards the higher end of the scale.

8. Supply & Demand

If you are hiring in a niche area, where demand outweighs supply, you should expect to pay a higher salary to attract the right people.

This is where outsourcing your hiring to a recruitment agency that specialises in your area of expertise can in fact save you time and costs. The benefit of using a recruitment agency in this case is that specialist recruiters can tap into their existing talent pool much faster and find specialist professionals who are often not actively applying for jobs.

The amount of hours consumed and money spent when sourcing talent, writing job descriptions, writing job ads, interviewing people, shortlisting candidates etc. is often underestimated. At this stage you can write a list of what the costs are for trying to fill the position using your existing staff (salaries of internal recruiters, job ad writing, interviewing candidates) or whether it is better value to use a recruitment agency.

9. Perks & Benefits

Last but not least, perks and benefits should also be considered when determining a new hire’s salary. Depending on the industry and the talent, having perks and benefits such as allowing people to work from home, offering professional development opportunities or additional leave can help you attract the right talent.

Helping you hire the best people, at the right cost

While there are a few steps involved in identifying your new hire’s salary, following the above steps, and making use of our interactive Salary Guide Calculator, will help you work out the right salary to pay your new employee.

However, if you have any questions around finding your next hire or need help identifying the right salary, feel free to contact us.

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