How to Determine Employee Salary for Small Businesses

A growing small business will certainly require additional employees to keep you from being overwhelmed. Many things come to the forefront when recruiting employees, including the designated salary system. You, as an inexperienced business owner, may still be confused when it comes to determine the employee salary amount.

We will share with you a guide on how to determine employee salaries for small and medium enterprises (MSMEs). Check out this article until the end.

Determine the Type of Employee Salary

You need to know the different types of employee wages before you determine the amount of salary you want to give. This type of employee wages is useful to design a payroll system according to the financial situation of your company. In Indonesia, there are five types of employee wages based on a payment system, namely:

1. Time Based Salary

This type of wage is most commonly used in all types of business. This wage is paid either daily, weekly, or monthly depending on the duration of the employee’s work.

2. Wholesale Wages

The unit wage is set at the beginning of a project. This wage includes the employee’s work until the project is completed with no nominal premium pay, even though extra work is involved. An example of a piece rate wage is: you hire a social media freelancer and pay a starting wage of IDR 4,600,000 until the project is completed.

3. Premium Salary

This type of compensation is given when the employee performs exceptional services, for example: doing vacation work, completing work with special skills, or completing the most difficult tasks.

4. Periodic Wages

Periodic wages are determined based on the progress or decline of your business results. Wages will increase when there is progress in sales results. Conversely, employee wages will decrease if there is a free fall in sales results.

5. Business Partner Salary (co-partners)

This type of wage is paid in the form of securities such as stocks or bonds. The business partner wage system aims to promote employees’ sense of belonging to the company so that they are more productive at work.

How to Determine Employee Salary for Small Businesses

Have you decided what kind of wages you want to implement in your small business? Now it’s time to determine the amount of salary you want to give to the employees. This task is quite challenging as you need to give the amount according to their performance. On the other hand, your small business still needs capital to carry out operational activities.

In order not to make a wrong move, follow the method below to determine employee salaries.

1. Conduct Salary Research

Research always plays an important role in business decisions, including determining salary levels. Conduct salary research based on employee skills, experience, and qualifications. The results of this research will help you offer a salary that is neither too high nor too low.

2. Set The Base Salary

After you get the appropriate figure, you can determine the base salary to be paid to the employees. It is not a problem to request a salary below the UMR, especially if your company is still relatively small. Also, make sure that the salary burden paid to employees does not negatively affect the company’s financial situation.

3. Offer Bonuses or Allowances

You can consider offering bonuses or other benefits to fulfill employee welfare or boost morale. These benefits can take the form of employment guarantees or health insurance. Bonuses do not have to be given every time, so they can be customized to meet your business needs.

4. Show The Work Value of Employees

Of course, you want to indicate a different salary level between high school graduates and bachelor’s graduates. For this reason, it’s important to know the value of an employee’s work based on their educational qualifications, geographic factors, or work experience. Your resume or the results of your interview with the candidate can also be taken into consideration when setting the salary amount.

5. Consider The Work Contribution

The employee’s work contribution must be considered when determining the salary. For example, employees in finance may receive a higher salary because they have a high level of responsibility. The greater a job’s contribution to your company, the higher the salary awarded.

6. Adjust Company Regulations

The payment of wages in small businesses is actually in the Government Regulation on Wages No. 36 of 2021 Article 36. This regulation can be an important consideration in providing an appropriate wage rate. Some provisions are regulated as follows:

  • There is no obligation to apply minimum wage provisions.
  • Wages are set based on an agreement between employers and employees.
  • The level of wages is at least 50 % of the average consumption of the population at the provincial level.
  • The level of wages is at least 25% above the poverty line at the provincial level.

7. Consider a Salary Increase

You can increase your salary when your business starts to grow. A salary increase is also necessary if an employee has dedicated a long time to your company during their career. Employees feel valued and show more loyalty when you take this step.

Example of How to Calculate and Determine Employee Salary for Small Businesses

You can implement a daily or monthly payroll system for small business employees. The following example can be used as a benchmark for calculating employee salary per person based on the specified duration.

1. Calculation of Daily Salary

You run a Warteg business and have 4 employees with a salary of IDR 2,000,000 per person. Two of the four employees are paid daily. In a month there are 25 working days while they enter only 20 days. For this case, you need to implement a daily prorated system. The method:

20/25×2.000.000 = 1.600.000

Thus, each daily employee receives a salary of IDR 1,600,000.

2. Calculation of The Monthly Salary

In the above case, you have two employees who are paid monthly. They also receive a travel allowance of IDR 300,000 and a meal allowance of IDR 150,000. You just need to add the salary and benefits to determine the amount of salary paid, like:

2.000.000 + 300.000 + 150.000 = 2.450.000

Thus, each employee receives a salary of IDR 2,450,000

Recruiting employees is not easy as it requires a lot of consideration, including determining their salary. You can use an explanation on how to determine employee salaries for small businesses so that you can pay them reasonable wages.

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