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Be organised and create a pay structure with these 5 steps

by , 24 November 2015
Pay structuring is the process of determining pay levels for jobs, levels of jobs and job categories. It can also be a basis for implementing rewards and pay policies throughout your company.

What's more, a pay structure supports Employment Equity legislation. It prevents any unfair practices, such as race or gender, from interfering with pay.

Here are 5 steps to develop a pay structure...

Step#1: Understand the frame of reference

Base salary: Annual or hourly pay rate an employee gets for normal performance. This doesn't include overtime, premiums or incentives.

Minimum wage: The lowest hourly wage you pay.

Salary band/range: The range that a salary can fall within. It shows a minimum, target and maximum salary for a job or a group of jobs.

Step#2: Create salary bands or ranges

When creating your pay structure, you'll need to determine what types of pay bands or ranges your structure will use.  

Step#3: Determine the maximum and minimum levels per band or range

Broadbands and salary ranges can overlap. What this means is that the maximum salary of one band can be higher than the minimum salary of the band above it.

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Step#4: Group jobs into bands/ranges

You can do this by using one of the following 2 methods:

1.      Simple ranking order: Using 'common sense' to rank jobs accordingly.
2.      Job evaluation: Award points based on various factors to do with the job, such as skills required, responsibilities etc.

Step#5: Assess job expectations to determine the relative position within the grade/range

Each broadband, or salary range, should have a corresponding minimum salary, a target salary, as well as a maximum salary.

You should place jobs within each of these salaries according to the following criteria, salaries:

·        Between the minimum and target for employees still learning the job;
·        At target rates for fully-functioning employees; and
·        Between the target and maximum salary for employees who put in more… In other words, their performance is deserving of reward.
At the end of the day, pay structures communicate a very positive message with your employees in that it shows your intention to make pay decisions in an objective and equitable way.

NOTE: Most small businesses can manage without a pay structure. But as soon as your company gets larger (100-200 employees), then it'll be essential to have one. 

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