Is It Time To Start Paying Your Employees More?

by Mark Henricks

Now might be a good time for business owners to consider handing out raises. If, that is, they want to hang onto their valued employees, because many employers are paying more these days, and it’s starting to look like a trend.

Nearly one in six business owners said they planned to raise wages and salaries soon, when surveyed by the National Federation of Independent Business for its June Small Business Optimism Index report. Another 24% had already fattened worker pay envelopes recently.

The report marked three months of improving optimism and raised the index to its highest since 2007, according to the Nashville-based association. Combined with the recent news on pay hikes, this suggests employers who expect employees to stay despite frozen or declining pay are going to have to come up with a new plan — or risk losing key workers to better-paying opportunities elsewhere.

The real picture may be more complicated, however. Employers are paying more, but not much more, according to Rob Basso, president of Advantage Payroll Servicein Freeport, New York, and author of The Everyday Entrepreneur (Wiley, 2011). Basso said a survey of Advantage Payroll Service’s small business customers found most gave raises last year, but raises averaged just 1 or 2%.

Basso said employers are more actively improving benefits, especially health coverage, rather than cash compensation. Employees do value better benefits, he said. But employers should share what improved benefits actually cost in order to best retain and motivate workers. “If they don’t see the bill, it’s just part of their package,” Basso said.

NFIB Chief Economist William Dunkelberg, noting that economic recovery has been uneven as well as lengthy, suggested it is understandable that business owners raise wages a little, but not go overboard. “Three gains in a row could be the start of a trend,” Dunkelberg said, “although we have had quite a few of these along the way that didn’t pan out.”

For business owners hoping to hang onto talent without paying too much above market, the message seems to be that handing out some raises is probably a good idea. But they don't have to be big raises. And improving benefits, if the value is clearly communicated to employees, can be as effective as a pay hike in keeping employers competitive.

Small Business Optimism Index:

Advantage Payroll Service:

About This Author

Mark Henricks

Mark Henricks is a freelance journalist covering business, entrepreneurship, technology, personal finance, health and fitness  for leading publications.


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