Salaries and wages for your staff

What are the laws?

First published on Thursday, Jun 04, 2020

Last updated on Monday, Jun 17, 2024

But when it comes to attracting, rewarding and retaining talent, it’s best to start with the most fundamental bit: salary.

Salaries represent the cornerstone of your remuneration package, the biggest chunk of your monthly staff spend, and the basic unit employees use to measure their own value. Good salary management can make your organisation more competitive, and your workforce more productive. It’s time to find out how.

Setting starting salary levels for new employees

There are many approaches you can take to setting employee pay levels.

  • Job evaluation, where duties and the level of responsibility are used to determine salary, is commonly used by public sector employers.
  • Comparison with market rates is used by over 40% of employers to ensure salaries are competitive. The method is more popular in the private sector. (CIPD 2013)
  • Ability to pay is a perhaps the most significant factor in setting salary levels, especially for smaller businesses. After all, you can’t pay what you don’t have!

Discussing salary with new employees

After selecting a candidate at the end of your recruitment process, you have a short window in which to negotiate salary if required. You should take into account the scarcity of the new employee’s skills and experience, and the job’s current market value.

Deciding on a pay structure

Most organisations use a pay structure to determine salary levels, although some are more rigid and formal than others. Research shows a clear split between sectors: private companies prefer individual salaries, while the public sector uses graded pay systems more often.

It’s common for companies in all sectors to have a separate pay structure for senior executives.

Graded salaries based on job title

Graded pay systems make salaries easier to manage for larger organisations. They also lay the groundwork for pay progression systems.

Types of graded salary structures include:

  • Narrow-graded pay: Each grade contains roles of broadly equivalent value. Because grades are narrow and many, employees often reach the top of their grade quickly and are left stuck with no further progression opportunities.
  • Broad-graded pay: Broad structure use fewer grades, and therefore provide more room for pay progression within the grade.
  • Pay spines: Often found in local government organisations, pay spines are similar to narrow-graded pay structures and feature long grades with incremental pay progression points.

Individual spot salaries

Almost half of organisations use spot salaries, where each job or person’s salary is decided individually. Spot rates are found at both ends of the pay spectrum: in low-skilled jobs, and in the most senior positions.

Increasing salaries

If you want to retain your best staff and recruit competitively, you can’t escape the need to increase salaries. There are two ways to increase pay, broadly speaking: pay progression systems and salary rises.

Pay progression systems

Pay progression is often used to reward and encourage positive behaviour and flexibly control pay levels. Employees benefit from a fair and transparent pay increase system.

Pay progression structures are usually linked to graded salary structures. Each grade has a minimum or starting salary, and a maximum salary that employees can progress towards. The percentage increase from the minimum to maximum is called the grade span. For example, a grade that ranges from £18,000 to £24,000 has a span of 33.3%.

Employees often progress up their pay grade based on performance, length of service, or skills or competency development.

Salary rises based on market factors

You might also increase workers’ salaries to:

  • Stay competitive with other employers when market conditions change
  • Keep in line with inflation and rising living costs
  • Reward employees’ performance outside of your pay progression structure, for example if financial results increase your ability to pay

Legal obligations on salary

Finally, it’s important to remember that pay and salaries must meet relevant legislation — for example on equal pay and the national minimum wage (NMW). In April 2016, the new national living wage (NLW) came in effect.

Janine Lennon

Head of Payroll Services

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