Insights | March 05, 2021

Calculating a fair price of labor

Knowing the true cost of labor is necessary for any entrepreneur to keep the business running, and the employees happy. Finding an accurate price to charge will help you budget those projects correctly, making sure that you are not over or undercharging. 

To help you get started, check out what our network of entrepreneurs has shared with us. Every company is different, so you decide what advice best applies to your needs. 

Check Labor Standards

The first thing you want to do is to check labor standards. You want to make sure that what you are paying your workers is in line with what the law constitutes as fair pay. This will not only make sure that you don’t get into any legal trouble, but it will also help you build a reputation as a respectable employer. Make sure that the information you have is relevant to the state you employ in. 

Checking with standards does not only mean that you are paying a legally fair wage. If you want to be ahead of the curve, you should also check what other companies in your industry are paying their workers. I n most cases, your workers are probably aware of what other companies or competitors are paying. Although you should have your own practices and determine your own wages, it is always good to know where you stand on that salary spectrum. 

Track Productivity

As you already know, team members play different roles, earning different wages. Some employees play the same role but don’t bring in the same amount of work. Some workers may be more experienced and less time to complete a task, while others are less productive. As a manager, you need to ask yourself whether you want to pay both workers the same pay. If you decide to pay based on productivity, you need to think about ways of tracking it.

Luckily, there are many digital solutions designed to help managers keep track of productivity, because well, you simply can’t be everywhere at the same time. From tracking work hours of your team to detailed reports on time, resources, and money spent on a project, measuring productivity with apps as Atto has never been easier. After you have collected real-time data on your team’s productivity, you can make an informed decision about the level of pay each worker or team deserves. 

Set a Base Pay

If you read the last paragraph and shrugged a little, that decision model may not be suitable for your business. Perhaps, your employees are pretty much on the same level. The ones that are more productive have higher positions and receive higher pay as a result. Or maybe you have way too many employees or too little time to keep track of individual productivities.

If all this sounds familiar, setting a base pay may be right up your alley. When you pick a team to complete a task, calculate what each one is costing you hourly, weekly, monthly, or annually. Use that base pay as a guide for a fair price of labor for each new hiree.

Quick Tip

Keep in mind that base pay differs for each position. Team and project leaders naturally get paid more. Consider how many workers from each job role you truly need to get the job done. A base rate is a helpful guide, but don’t let it be the reason you underestimate your labor costs. Each employee costs you way more when you consider factors like vacation and sick leave, insurance, and training costs.

See Related: The Logic Behind Calculating Billable Hours

Consider a Bonus Policy

Does your company give end-of-year bonuses? Performance bonuses? Any type of bonuses?!

When thinking about a fair price to pay your employees, don’t leave out any extra pay that your employees occasionally get. A survey shows that around 73% of respondents use bonuses to retain employees. At the end of the day, money is the oldest trick in the book. Employees show a boost in morale when they receive bonuses, especially during holidays, which will surely result in a positive attitude towards work. If you’re considering a bonus policy, please keep in mind that your bonus program should reward employees who promote ‘top employee’ behavior. This will boost their morale and yours too!

It seems that bonuses make employees happy, and they are more likely to be satisfied with their jobs and deem their pay as fair. What does this mean for you? Don’t forget to account for those bonuses when determining a fair price of labor. Even if you can’t afford very high wages, that end-of-year bonus may truly make a difference for good or worse.

See Related: The Ideal Work Environment in 2020


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Atto is the simplest timesheet app for small and medium-sized businesses. It’s intuitive interface and carefully designed features, including time tracking, location tracking, team insights and automated timesheets help employees and managers focus on real work.

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