How much pay is enough pay? Part 2

Article By: Bill Vogel, PHR
Date: 5/21/2018
Virtual HR Pros
 
Last week I posted an article that provided managers with guidance on selecting salary philosophies and how much to pay employees compared to competitors. This week in part of two, I will provide further guidance on this topic, which is the development of pay ranges.  This is an important step because pay ranges help to control labor budgets and keep pay rates fair and consistent based on job skills. Developing pay ranges includes the following primary steps:
 

1. Job Analysis
   
2. Job Groups
3. Job Market Research
4. Job Grading

 
Completing a job analysis can be a tedious process, it includes identifying each essential job function and the percent of time spent performing these duties.  The analysis also includes other requirements of a job such as skills, abilities, duties test to determine exempt (not eligible for overtime pay) or non-exempt (eligible for overtime time pay), and the physical demands. The US Department of Labor provides guidance to help determine exempt or non-exempt pay status. In addition, I also provide a job analysis form available on my website, Virtual HR Pros Job Analysis, to help in this step. As a side note, the job analysis ultimately leads to the job description.
 
After completing an analysis for each job, the manager places the jobs into job groups. For example, administrative, clerical, managerial, and technical job groups. If needed, managers may also want to rank jobs within the groups. Ranked jobs are similar positions, but have junior or senior titles such as Senior HR Generalist or Junior Recruiter.
 
I touched upon Job Market Research in part one, but to recap, market research means having external pay data for all jobs within a company, such as data provided by the US Department of Labor’s Occupational Employment Statistics. This data includes minimum, average, and maximum pay rates, usually provided as percentiles, that other companies across the country are paying to their employees. This data is usually collected through surveys or governmental reporting requirements. Managers match this data to their jobs and add it to the job analysis to get an idea of how much to pay for a job based on the labor market. 
 
After managers collect all the pay data, jobs are assigned a job grade, which is based on similar job worth. For example, market research might reveal that jobs such as File Clerk, Receptionist, and Janitor have the same or similar minimum, average, and maximum hourly pay rates. Therefore, these jobs share the same pay range and fall into the same job grade. After completing each step, managers, or the HR Manager then separates jobs by grade and assigns the  pay ranges. Here is an example of a finalized pay range table for a hypothetical Job Grade 1 (California's geographic salary market):









Here are some other tips to help avoid future compensation issues down the road: Select pay data based on geographic locations such as within a state or city. Audit pay ranges each year to ensure updated and relevant pay rates in a range. Avoid paying below the minimum pay rate, referred to as green-circled employees, and paying above the maximum rate, referred to as red-circled employees. Audit job descriptions and pay rate consistency between men and women in similar jobs for compliance with equal and fair pay laws to avoid pay discrimination issues.
 
As always, get help from a qualified HR Professional if you think your business is at risk, or needs help developing compensation policies, procedures, and training courses to assist with workplace compliance requirements.

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