How much should I pay my employees?

There is some truth to the old saying that “you get what you pay for.” One thing is for sure: a loyal, hardworking, trained employee is worth a lot in any field.
The federal minimum wage is currently set at $7.25/hour as of July 24, 2009. About 19 states have minimum wages that are above the federal level, six states have no minimum wage law, and one state currently has a minimum wage that is set below the federal rate. The U.S. Department of Labor maintains information on wage rates at
But let’s assume that your question is less about the law and more about the logistics of deciding how much to pay. How much to pay an employee depends on several factors.
? First, what will the employee be doing? How much responsibility will he/she have? How specialized are the skills required to do the job? If you’re hiring someone who will be responsible for a critical area of your business, find the money to pay that individual well.
? Second, how big is the potential pool of employees? What is the market currently paying? In times of low unemployment, you will be competing for employees with larger businesses that will likely drive the starting pay up beyond minimum wage.
? Third, are you willing/able to offer some other benefit(s) in exchange for a lower pay rate? For example, are you able to provide some specialized training? Are you able to provide room and board? Is profit-sharing an option? What about flexible scheduling, health insurance, other benefits?
? Fourth, how difficult would it be for you to replace this employee if he or she left? It is frequently true that it costs more to recruit, hire, and train an employee than it would have cost to offer an existing employee a raise.
Some other tips to consider in developing pay guidelines:
? What is the differential between the highest- and lowest-paid employee in your business? Many successful businesses have moved toward a model of flattening out that differential as much as possible. That means, in general, that your starting rates may be a bit higher than the regional average, and your higher-level employees will be a bit lower than the regional average. For companies that have a social mission built into their operations, this strategy seems to work.
? Be sensitive to the cost of living in your region. If your business is located in a place where the cost of living is high, then you’ll need to pay more to entry-level employees.