How To Figure Out What To Pay Your First Employee

By Chloe Taylor

So, you have started your new business, and things are going so well that you figure you have to hire an employee. Hiring your first employees is one of the most monumental and challenging decisions you will make for your business.

In the United States, most employees work for small businesses. Taking that leap from a single-person office to a two-person operation is one of the most challenging things for small businesses to do.

A significant issue of contention for most entrepreneurs and business owners is what to pay the first employee. The following is a guide to help you figure out what to pay your first employee:

Assess Your Income

The first step to figuring out what you will pay your first employee is to assess the income your business generates. Though the workload might be overwhelming, you cannot afford to pay an employee if you don’t have the money, let alone hire one.

Your business needs to generate enough income consistently for you to afford to hire your first employee. Moreover, you should be generating enough to have a cushion that will cover your payroll expenses even if business slows down. The last thing you want is to hire one or a team of employees and be unable to pay them down the line.

Therefore, you must accurately estimate your weekly, monthly, and yearly revenue to determine if you can afford to hire your first employee. Business income is a great metric, but cash flow is even better because unpaid accounts won’t pay for an employee’s salary or wages.

Labor Laws

You should know that labor laws in every country guide how much a business can pay its employees. The foremost rule in this regard is the minimum wage law which states the least amount you can pay a worker per hour.

Therefore, you need to evaluate your country or state’s employment labor law if you want to determine how much you can pay your first employee. The rules often pertain to the amount of business you do in a month or year and the markets you do business.

Minimum wage is a sound basis on which to find the amount you will pay your first employee. However, the value they bring is a much better metric to use to determine pay.

Employee Skills

When looking for the first employee to hire for your business, you will most likely put up a list of requirements you would like from the employee. The candidates will then list their skills in an attempt to meet your needs and get the job.

The skills an employee brings to the business are a substantial determinant of how much you should pay them. Like anything else in your business, hiring an employee is an investment, and you will pay the employee based on the return on investment.

Generally speaking, an employee with more valuable skills will require more pay than one with less valuable skills. The value they generate for the business will be the best way to judge the employee’s application of their abilities.

Nature of Employment

There are different types of employees, including salary employees, wage workers, and temporary or seasonal employees. The nature of employment you offer your first employee will determine how much you can pay them.

You may have to hire a contract employee if you only need them for a particular task. If you need a permanent employee, you should also consider the benefits which are vital for employee morale.

Once you know the nature of employment for your first hire, you can easily determine what to pay them.

To conclude, hiring your first employee is a big step for a small business. It will set the groundwork for all future employee hires. Evaluate the factors above to find the best way and rate to pay your first employee.

Chloe Taylor is an art historian and recreational ballet dancer. She is passionate about photography, dance, and music.