Top 5 Key Factors That Determine An Employee's Salary

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When you are determining the right compensation for an employee, you might find that it is a little bit trickier than you thought. Money is a sensitive and crucial aspect of a new hire, or a long-time employee looking forward to his next raise. Many factors influence this decision, so taking your time, as an employer, to list a few is key to making the correct decision.

Determining compensation rates that are both fair and competitive requires a little bit of effort and research; you will need to figure out the five key elements that determine an employee’s salary. This blog lists down the most influential aspects that you need to keep in mind when calculating compensation rates.

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Experience and Education

This is likely the most common factor that employers or an employing committee looks at during various parts of hiring, and then later when further compensation is required. The better the experience, the more valuable the employee will be. For instance, someone with five years of working experience and a Master’s Degree will be given a salary according to their experience.

One of the most common mistakes that employers tend to make is to hold off on looking for an employee with more experience, in the hopes that someone who will settle for a lower pay might come along. They miss the key point that an empty position will inevitably cost them more than paying a highly qualified employee the salary they deserve.


What Industry is Involved

Depending on the industry, many workers at the same level and sometimes even in the same field can be paid differently. If your company involves calculating a salary for a receptionist at a small office, it will be significantly smaller than the salary paid for the same position to a person with the same experience, at a larger firm. It also depends on whether or not a job is crucial to the company, but more often than not, an employee’s salary is affected by the size of the business they apply to or work in.

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Location, Location, Location!

One of the most important factors that affect the salary of an employee is the cost of living. Compensation depends upon the location of your office, but more importantly, on the cost of housing. An example of this would be how salaries in urban districts are higher when compared to those in rural areas. However, with the increase in remote working, employers are now turning to role-based compensation, as many employees can work from home. A little recon about this particular factor will go a long way.


Employee Skillset

An employee’s skill set is one of the primary criteria to compare against when it comes to calculating a salary. This is important because usually, companies demand different skills for the same position. Additionally, employees who have a wider skill set can apply for more than one role, which likely more candidates are vying for. This makes it important for you to consider skillsets when determining the salary of a new hire or an existing employee.


Recruiting Supply and Demand

This is another key factor that will influence an employee’s salary when it comes to hiring or calculating a raise. You need to be aware of the available talent that your company needs, especially in the areas closer to your business. If you are located in an area where an employee’s skill set and experience are greater than the supply, then you will have to offer a heftier salary to retain or attract that employee.

Find Jobs in Michigan with Apptree

With Apptree Staffing Solutions, you can find temp, temp-to-hire, part-time, and full-time opportunities.


When it comes to calculating an employee’s salary, research and competitive intelligence will prove to be most beneficial. And, if you are looking for more help in other aspects of your business, Apptree offers updated and relevant information for both employers and employees to go through.