Small businesses have different advantages and disadvantages to larger firms. Your company is going to be able to react much faster to change than a big firm. You’re also probably going to be able to relate more closely to your customers. But here are two disadvantages – you’re probably not going to be able to pay as much for your employees as a larger company would, and even if you could, your employees are statistically more likely to leave your business sooner than they would a large company.

We’re talking about this here to help you understand what salary can do, and what it can’t do. Wages don’t level the playing field. Some people simply don’t want to work for a big company. Some people will want the flexibility your business might be able to give. Some people want a different challenge.

But you’re still going to play cat-and-mouse during the job interview. You’re probably going to want to ask a prospective employee about salary expectations. And that prospective employee is probably going to dodge the question. C’est la vie.

Finding Data

You should understand what information your candidate will likely have in hand. Folks know what they were making in their last job, and probably know what their peers were making there – that’s information you don’t have.  Web sites like Salary.com, Salaryscout.com and Payscale.com will tell people what folks with a given job title reportedly make in a given geographic area. Presume your candidates have that information, and be prepared to either pay close to the average or to refute their comparison.

Your local Chamber of Commerce will likely have local salary data, which only the most enterprising potential employees will have. And if they’re interviewing with you because they’re a friend of a friend or a business associate, they might know what other folks make at your business.

Here’s a framework for making your salary decision. Take data from these sources, plus whatever you can dig up on your own. Then look at the benefits you might be able to offer – perhaps working from home, flexible hours, a phone stipend, or fringe benefits like free coffee and an opportunity to train or build experience in a new career. Ask yourself what value a person who you would want as an employee would place on those benefits. Some people care more about flexible hours than others, for example.

If at this point, you’re offering a wage that’s still substantially below average, you should lower your expectations for employee quality and retention. If you’re above average, you should raise those expectations.

Wages and the law

The basics: The Fair Labor Standards Act set the federal minimum wage at $7.25 per hour, effective July 24, 2009. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.

Overtime is paid at 1.5 times base pay for hours worked over 40 per week, for any regular pay period of 168 hours. But federal law doesn’t require you to pay overtime on the weekend.  Check your state laws – your mileage may vary.

The FLSA recently established exemptions to the overtime rules for professional, executive and other workers. Generally, the exemptions start at $455 per week of salary ($23,660 a year). 

The executive exemption requires:

• A salary of $455 per week
  
  
• Management, as a primary duty, of the enterprise or a department or subdivision thereof, in which the employee is employed
  
  
• Customarily and regularly directing the work of two or more other employees
  
  
• The authority to hire, fire, or promote other employees OR provide recommendations on employment decisions that are given particular weight

The administrative exemption requires:

• Have a salary of $455 per week
  
  
• Performing, as a primary duty, office or non-manual work directly related to the management or general business operations of the employer or customers
  
  
• Exercising discretion and independent judgment with respect to matters of significance

The professional exemption requires:

• A salary of $455 per week
  
  
• Performing, as a primary duty, work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized instruction OR
  
  
• Performing, as a primary duty, work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor

The computer professional exemption requires:

• A salary of $455 per week or $27.63 an hour
  
  
• Computer systems analysts, computer programmers, software engineers, or other similarly skilled workers may be exempt, but only if the employee’s primary duty consists of (1) application of systems analysis; (2) design, development, documentation, analysis, creation, testing, or modification of computer systems or programs based on and related to user or system design; (3) design, documentation, testing, creation, or modification of computer programs related to machine operating systems or (4) a combination of these duties.

The outside sales employee exemption requires:

• As a primary duty, making sales or obtaining orders or contracts for services for which consideration will be paid by the client or customer
  
  
• Customary and regular work away from the employer’s place or places of business.
  
  
• No minimum salary is required for the outside sales exemption.

Wages represent only about 70 percent of the average cost of employing labor, according to the U.S. Department of Labor. Budget accordingly.

U.S. Department of Labor’s Bureau of Labor Statistics (June 2007)