Setting staff wages is a tug-of-war between the head and the heart but it’s vitally important to get it right.

If you’re too generous, you could end up harming the long-term viability of your business, and putting yourself and your family in a precarious position.

But if you don’t reward talent and experience, you might see key members of staff walk out of the door.

That could leave you unable to meet demand or, if customer service or product quality suffer, might seriously damage your business’s reputation.

Here are some tips on how to reduce the tension and start making measured decisions about wages.

Legal obligations: the minimum wage

Don’t agonise over the lower boundary of your employee’s earnings as that is set by law.

In 1998, the Government introduced the Minimum Wage Act, initially setting the bar at £3.60 per hour.

From 2016, an additional National Living Wage was introduced, bumping up significantly the effective minimum for those over 25.

In 2018, the minimum hourly rate for people aged 25 and above is  £7.83, set to rise from April 2019 to £8.21 per hour.

National minimum wage rates
From April 2018 £7.83 £7.38 £5.90 £4.20 £3.70
From April 2019 £8.21 £7.70 £6.15 £4.35 £3.90

If yours is a food or drink service business, be aware that tips don’t count towards the minimum wage.

Take them into account when deciding how much above minimum wage to pay waiting staff or bar workers.

An independent body, the National Living Wage Foundation, argues that the Government’s living wage is still too low.

It has its own ‘real living wage’ suggestion of £8.75 per hour nationwide, and £10.20 per hour in London.

What can you afford?

Next, you need to know what your upper limits are – what is the maximum amount of flexibility you might find in your salary budget while still keeping the lights on?

If you’ve got good cashflow reporting and forecasts in place, we recommend using Xero accounting software.

This shouldn’t be difficult to work out in the abstract. It’s then a matter of deciding how to use that potential additional wage pot in practice.

Principles and pay structures

Again, in the abstract, think about your business structure, and the premium you put on certain skills and experience.

How does this role as, say, a chef, map to that one front of house? Do you want to pay counter staff more, less, or about the same as warehouse workers?

You might also map out when pay rises kick in. You might give a small pay rise after a worker completes probation, and perhaps schedule year-on-year wage bumps.

Make time to monitor the local jobs market. Are the wages you offer at least on par with your competitors? And if you want to attract the most talented employees, can you pay a little more than the going rate?

There is plenty of research out there on average pay in specific industry sectors, such as this regular bulletin from the Office of National Statistics.

Retaining skilled staff

As well as the the intrinsic value of experience, you should consider the true cost of recruiting and training a replacement for a veteran employee.

Think of the opportunities that might be lost while they get up to speed, and of the amount of your time and energy that could be absorbed in the meantime.

A sensible investment in wages is a key part of retaining your own work-life balance.

We can help

Planning your wage bill and operating payroll are far from easy tasks for most business owners.

At Evans & Partners, we can take these financial tasks off your hands with minimum fuss and maximum efficiency.

Check out our Real-Time Accounting service or get in touch to see how you can love your business and still have a life.