To set a fair salary, define the job and level first, then compare it with official pay data for your country and region, then build a range with a low, middle and high point. Check the range against what you already pay your team, and be ready to explain how a person moves through it. This guide gives you a method you can finish in an afternoon.
Key takeaways
- Price the job, not the person. Start with the role and the level, then place the person in the range.
- Use official data first: BLS in the US, ONS in the UK, Eurostat and national statistics offices in the EU.
- Build a range with a low, middle and high point. A single number invites argument.
- Check your range against current staff for equal pay. Fix gaps before you hire.
- Pay transparency rules are growing. Plan to share the range even where the law does not yet require it.
Why a method matters
Small employers often set pay by gut feel, by what the last person earned, or by what the candidate asks for. Each of these has a cost. Gut feel misses the market. The last salary may have been too low or too high. Asking the candidate first rewards people who negotiate hard and can create unfair gaps between people who do the same work.
A simple method fixes this. It also makes it easier to write the job ad, to make the offer and to answer questions from staff. The cost to hire an employee article shows the extra costs on top of the salary, which you need for your budget.
Step 1: define the job and the level
Write a short description of the work, not a long wish list. Include the main duties, the skills you must have on day one, the skills you can teach, and the scope: does the person manage others, handle money, deal with clients, or work alone? Level matters as much as title. A “marketing manager” in a two-person business may do the work of a coordinator in a larger firm.
- Entry: needs training, works under close guidance.
- Experienced: works alone on most tasks, asks for help on hard ones.
- Senior: owns an area, guides others, makes decisions with little review.
- Lead: manages people or a function, is accountable for results.
If you need help with the description, use the job description for a new role guide.
Step 2: collect official pay data
Use official sources before you use job boards or word of mouth. They show real data collected on a clear method, and they are free.
United States
The US Bureau of Labor Statistics publishes pay data by job and region in the Occupational Outlook Handbook and the Occupational Employment and Wage Statistics tables. Search for the job title, pick your state or metropolitan area, and read the range of pay from the lower to the upper end. Also check your state minimum wage and the federal rules on overtime for non-exempt roles at the Department of Labor.
United Kingdom
The Office for National Statistics publishes earnings data on its employment and labour market pages. Look for earnings by occupation and by region. Check the current legal minimum on the GOV.UK national minimum wage page, because it varies by age and changes from time to time.
European Union
Eurostat publishes labour data across member states at the Eurostat labour market pages. For a single country, the national statistics office is usually better, and some countries set pay floors through national law or collective agreements. Always check whether a collective agreement applies to your sector.
Step 3: build a range
Take the official figures for your region and role, and decide where you want to sit: below, at or above the typical level. Then build three points.
| Point | What it means | Who sits here |
|---|---|---|
| Low | Entry to the job, meets the basic requirements | New to the level, needs training |
| Middle | Fully able, does the whole job well | Most people after the first year or so |
| High | Beyond the level, with extra scope or rare skills | Strong performers and those with scarce skills |
Keep the range wide enough to allow growth but narrow enough to stay fair. A very wide range hides unfair differences. A very narrow range leaves no room for progress.
Factors that move a person inside the range
- Skills and proven results that match the job needs.
- Relevant experience that the person will use in this role.
- Scarcity of the skill in your area.
- Extra responsibility that is written in the job description.
Avoid factors that are not job-related, such as the pay at a previous job, what the person says they need, or how well they negotiate. In some places you cannot ask about pay history at all. See pay transparency in hiring for the rules.
Step 4: check against your own team
Before you hire, put your range next to the pay of people who do the same or similar work. If the new range is much higher than the pay of a current employee, you have a fairness problem to solve, and it is cheaper to solve it now than after a complaint. Equal pay laws exist in the US, UK and EU, and they cover work of equal value, not only identical jobs. The US EEOC page on equal pay and the GOV.UK gender pay gap guidance are good places to start.
| Check | Question to ask |
|---|---|
| Same job, different pay | Is there a job-related reason, such as skills or results, written down? |
| Similar jobs | Do the jobs need similar skill, effort and responsibility? |
| Group pattern | Do women, minorities or older workers cluster at the low end? |
| New hire above current staff | Will you raise current staff, or can you explain the gap? |
Step 5: decide the total package
Salary is only part of the offer. List the parts you can give: base pay, bonus, benefits, holiday, flexibility, training and growth. A small business may not match a large firm on base pay but can often win on flexibility, learning and responsibility. Be honest. Do not promise bonuses, equity or raises that you may not be able to give.
- Base pay: the range from Step 3.
- Variable pay: only if you can describe the rule and pay it reliably.
- Benefits: those required by law, plus any you can afford.
- Time off: the legal minimum plus any extra.
- Growth: a written plan for review at six and twelve months.
Step 6: explain the range
Tell candidates the range in the job ad or early in the process. It saves time for both sides. It also reduces the risk of a person turning down the offer after several interviews. A short sentence is enough: “The salary range for this role is X to Y, depending on skills and experience.” The write a job ad guide shows where to place it.
When you make the offer, explain how you reached the number, in plain words: “This is where your skills sit in the range, based on the requirements we discussed.” If the person asks for more, ask what skill or scope is not yet priced in. If there is a real reason, you can move within the range. If not, explain what growth looks like.
Common mistakes
- Using the last person pay as the only guide.
- Posting a range that is far from what you can actually pay.
- Giving a higher offer to the person who negotiates harder, without a job-related reason.
- Ignoring pay for current staff, then facing complaints.
- Forgetting taxes, insurance and benefits when you budget.
- Setting pay below the legal minimum, including for trial work or short placements.
A one-page salary worksheet
| Item | Your notes |
|---|---|
| Job title and level | |
| Main duties (three to five) | |
| Official data source and figure | |
| Range: low / middle / high | |
| Comparison with current staff | |
| Total package | |
| Date reviewed and by whom |
Review the range each year
Pay data changes. Review each range once a year, and again if you have trouble hiring or losing people. Write down the date and the data you used. A short note is enough, and it protects you if someone asks why a person is paid as they are.
When to ask for help
If you pay across several countries, use a payroll provider or adviser who knows local law. If you have a collective agreement or a union, follow its rules. If you are unsure whether a gap between two people is justified, ask an adviser to review it. The aim is a range you can explain in a sentence to any employee.
Worked example (fictional)
A five-person landscaping firm needs a crew supervisor. The owner writes the job as: leads a crew of three, plans daily routes, handles customer calls and signs off finished work. That is the experienced to senior level. The owner checks the official wage tables for the region and finds a spread of pay for first-line supervisors. The owner picks a range that sits near the middle of that spread, because the firm can offer a company van, a four-day week in winter and a clear route to manager.
Next, the owner checks current staff. The longest-serving crew member earns close to the bottom of the new range and has asked about a promotion. The owner decides to post the range, offer the crew member an interview for the supervisor job, and raise that person pay if they do not get it, because the gap could not be explained by skills. The decision is written down on the one-page worksheet. The owner can now explain every number in one sentence.
Handling a candidate who asks for more
Expect a request for more at some point. A calm routine keeps the talk fair.
- Thank the person and say you want to find a fair answer.
- Ask what is behind the request: a skill, scope or market comparison you have not priced in.
- Check the range and the worksheet. Is there room for that skill or scope?
- If yes, move within the range and tell the person why. If no, say so, and describe what could change the answer later, such as a review at six months.
- Never go above the range for one person without checking what it means for the others who do the same work.
- Confirm the final number and package in writing.
If you do raise the offer, note the job-related reason. If the reason is only that the person pushed harder, think again. Over time, that pattern creates gaps that are hard to defend, and they often fall along lines of gender or ethnicity.
Pay in a small business with little data
Some roles are rare in your area, and official tables may be thin. In this case, combine three sources: the official figure for the closest occupation, two or three job ads for similar roles that show a range, and a short talk with a local adviser, accountant or trade body. Write down all three and your reasoning. Treat the result as a first range and review it after your first few hires.
Do not copy a number from a single job ad. Ads can be out of date, can show a range that is not real, or can be for a very different employer. They are a clue, not the answer.
Remote roles and pay across regions
If you hire remote staff, decide in advance how you will set pay. You can pay by the location of the person, by one rate for the whole company, or by a mix. Each choice has trade-offs, and each must be applied the same way to everyone in the same role. Write the rule, share it, and check the legal minimum and tax rules for each country. Our guide to hiring in another country covers the other steps you need.
Frequently asked questions
How do I set pay when I have no budget data?
Start with the official figures for your region, choose the low point you can afford, and be clear in the ad about what is not on offer. Add growth steps you can keep.
Should I ask candidates for their current salary?
In many places this is restricted or discouraged, and it can carry old pay gaps into the new job. Ask for their expectation after you have shared the range, where the law allows it.
Do I need to publish the range?
Some US states, the EU and parts of the UK are moving towards pay transparency. Check the current rule where you hire, and see our article on pay transparency.
Can I pay different people different amounts for the same job?
Yes, if the reasons are job-related and written down, such as skills, results or scope. The reason cannot be a protected characteristic.
Related guides
This is general information, not legal advice.