How to Analyze Salary Data

Look at compensation levels as if you were starting your business from scratch.
Look at compensation levels as if you were starting your business from scratch. (Image: shironosov/iStock/Getty Images)

Large businesses must analyze their employee compensation using a wide variety of figures and benchmarks because a small problem, multiplied by hundreds or thousands of employees, can seriously hurt a company. Smaller businesses can use fewer key parameters for analyzing their pay structure, such as comparing types of employees, reviewing seniority policies, and looking at taxes and benefits.

Check out the Marketplace

One of the first steps in analyzing salary data is to learn what other employers are offering for the same position. You can check national figures for many positions using the website of the U.S. Bureau of Labor Statistics, which provides information on average, mean and median salaries. Check local job boards and print classified ads to determine what businesses in your marketplace are paying their employees. Compare your salaries and benefits to what other companies are offering to get an accurate picture of how you compare.

Review Seniority Practices

Just because one employee’s been with you longer than another doesn’t mean that employee is worth more. However, employers often feel obligated to give raises and cost-of-living increases to keep experienced workers. This makes sense because replacing an employee can be an expensive proposition due to the job search and relocation costs. You will also lose productivity during the transition period for a new hire. The typical cost to replace an employee between 1992 and 2007 was 21 percent of the position’s salary, according to the Center for American Progress. Analyze each of your positions not only by what they are worth to your business, but also by the cost to fill them with a new employee. This can tell you whether it makes sense to pay higher-than-market wages for some employees.

Determine Total Costs

To determine what your employees really cost you, include their salary, payroll taxes, benefits and support needs, such as office space, computers, supplies, phones and other items necessary for them to do their work. This can help you determine whether or not it’s cheaper to hire a contractor or agency to do certain jobs. For example, using a contractor for your accounting might cost you $36,000 per year. An employee you pay $30,000 can end up costing you much more than $36,000 in total expenses. Work with a benefits provider to determine if you can lower your benefits costs and payroll taxes while still providing attractive benefits.

Compare Demographics

Are you paying your female employees the same wage as your male staffers? Do older employees cost you more in healthcare costs than younger workers? Comparing your salaries by age, race, sex and other demographic traits can help you determine if you might be discriminating and in jeopardy of losing high-quality employees or vulnerable to a lawsuit. Younger workers might cost you less in healthcare, but are also more likely than older workers to leave you within three years, according to Forbes magazine.

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