As an employer, you are continuously faced with the challenge of balancing your payroll costs with the need for qualified workers who are reliable, hardworking and loyal. As an employer in the San Francisco Bay Area, you must also contend with the rising cost of living and a low unemployment rate (2.6% in Alameda County and 2.7% in Contra Costa County as of November 2019). These factors – high cost of living, low unemployment and the need for qualified workers – are coalescing to create upward pressure on wages as the competition for quality workers accelerates among thousands of Bay Area employers.
Determining what you pay your workers is probably one of your most critical business decisions. Factors to consider include current and future company revenue, the opportunity cost of allotting dollars to wages vs. other budget items and the impact of salaries on your hiring process. As journalist and digital consultant John Boitnott points out (7 Reasons You Should Pay Your Employees Above-Average Salaries), you must also consider the impact wages have on the employee experience. Since your workers’ income affects their personal life and stability, it can also impact their productivity and, ultimately, your company’s success.
While you are likely paying at least minimum wage in order to be compliant with state or local requirements (see a survey of Local Minimum Wages compiled by the Tri-Valley Career Center), the decision to offer more competitive salaries requires a thoughtful analysis of the quality of your current workforce. Is your company achieving targeted goals of productivity, struggling with quality control issues or experiencing a high rate of turnover? As your organization confronts increasing competition for quality workers, you may want to consider the following when making payroll decisions:
Competitive pay can help overcome the shortage of experienced, qualified workers.
In the current business climate, the pool of quality workers who are experienced and reliable is shrinking. One of the most effective ways to attract the kinds of workers you want is through competitive pay. Offering above-average wages can help you draw higher quality workers who can have a positive impact on your business’s bottom line.
Word-of-mouth recruiting may improve.
Workers who feel fairly compensated are more likely to view your company and their jobs in a positive light, which may motivate them to refer friends and colleagues in their network to join your team. Employee referrals tend to be more successful hires than applicants off the street.
Competitive compensation motivates employees to stay longer.
Well-compensated workers are more likely to stay in their jobs long term. Worker loyalty has been shown to bring many benefits, including institutional understanding of your systems and expectations, higher productivity, stronger teams, lower turnover and less time and money spent looking for new hires.
Employees can focus more attention on the work.
When money is less of a concern, workers can more fully focus on their jobs, leading to higher levels of productivity and better quality of work. Also, many workers who make minimum wage are forced to take second (and even third) jobs, which can produce fatigue, distraction, and low motivation when they are on the job at your company.
It may take fewer well-paid workers to get the job done.
Well-compensated workers who are motivated and engaged are more likely to deliver higher output than under-compensated ones. This improved productivity may result in fewer workers required to get the job done, which can help lower payroll costs. A leaner and more efficient team can be especially beneficial for a small business looking to grow or survive long term.
Even though your payroll is considered part of your overhead from an accounting perspective, the Robert Half employment agency suggests that you consider looking at your workers as an asset rather than an expense (The high cost of low salaries: why paying a competitive salary is important). While newer employees may start off as a cost, satisfied workers who are loyal and stay with your company for the long term become more valuable as they accrue new skills, knowledge and experience – qualities that will add value to your organization over time.
If you decide that your company needs to offer more competitive salaries but are concerned about a sudden jump in payroll costs, consider boosting hourly rates in smaller increments, says HR Daily Advisor writer Kelly Creighton (Should You Offer Employees More than the Required Minimum Wage?). Creighton also suggests rewarding loyalty by offering salary increases for each year that workers stay at your company. Making incremental boosts in wages can help you incentivize your employees while managing your payroll costs to match your company’s growth.
Offering above-average salaries can not only help make your company more competitive in recruiting quality workers, but also boost worker loyalty and productivity. Higher payroll costs might mean less profit for your business in the short term but prove to be a sound investment toward a more successful company in the longer term.