How Do You Know If You’re Paying Your Employees the Right Rate?

Managing your IT services business can be one of the most difficult tasks you face as a technician turned business owner. When you start growing and hiring employees, your management responsibilities grow exponentially. One of the most important things you should consider when hiring employees is how much you’re going to pay them. This can have a profound effect on the quality of candidates you can expect to hire, your employee retention rate, and possibly even the security of your clients. Therefore, it’s critical to carefully consider your pay rates when hiring and maintaining employees.

Start with a plan

A well-organized business always starts with a plan. As I’ve said many times before, setting expectations is one of the key components of running an efficient business. In terms of our topic, here are a few steps you should take to set proper expectations:

1. Create an accurate job description
2. Define a pay range for each job description based on skills, experience, and time with the company
3. Assign quarterly goals that align to business outcomes

Once you properly set expectations with your employees, follow up with weekly one-on-one meetings, feedback, and coaching to make sure they have the opportunity to correct mistakes and improve behaviors.

Determining pay rates

Pay rates usually come up on two occasions, the hiring process and employee reviews. The right time to determine your pay rates is during your fiscal planning. When you plan for your next year or quarter, make sure you set a budget. That budget will determine how much money you will allocate toward new employee salaries and raises for existing ones. Keep in mind that just as you’re forecasting overall expenses and revenue for the company, you should forecast the same for employees. 

The most accurate way to measure average revenue per tech is to take your existing revenue and divide it by the number of technicians. Don’t forget to include yourself. If you spend 50% of your time doing tech work, only count yourself as half of a person. Likewise, if you have technical managers who spend 25% of the time managing and 75% doing technical work, count them as three-quarters of a person. 

Next, use a similar calculation to forecast average employee expense. You can do this by taking existing employee compensation and dividing it by the number of technicians. Remember to only attribute the percentage of expenses allocated to technical work. You should only add 75% of your technical manager’s compensation to the total if he or she only spends 75% of their time on technical work. Divide the total compensation expenses by the number of technicians (as calculated in the first step) to get the average expense per technician. 

What to pay new hires

This provides you with an understanding of how much a technical employee will cost versus how much you can expect them to generate in revenue. If you have a larger staff, you should break these numbers down further by your different tiers. The next number you’ll need is how much you expect to pay new hires. There are plenty of good sites like Salary.com and Glassdoor to get ranges for your specific regions. Lastly, as you budget, don’t forget to add in budget for raises for your existing employees.

In addition, keep in mind the following:

1. Not all compensation is financial and—especially with technical people—the challenge or learning opportunity may allow flexibility with the pay rate.
2. Retention is important in any business. Technical employees can be expensive to hire and onboard so keeping good techs is a good business move.
3. Cheap, disgruntled (due to low pay), or churned employees may be a security risk. Disgruntled employees are far more likely to take advantage of their access to customer and MSP credentials and use the information for personal gain.

What you pay your technicians has a profound effect on the wealth and well-being of your business. Make sure you’re setting expectations, budgeting properly, and rewarding good work so you don’t run into the pitfalls of not paying your people properly. Well-compensated employees who know their pay is tied to performance and know what they have to do to meet those performance goals typically try hard to do so.

Eric Anthony is the Head Operations Nerd at SolarWinds MSP. Before joining SolarWinds, Eric ran his own managed services provider business for over six years.

You can follow Eric on Twitter at @operations_nerd