how does HR department determine employee salary

How Does the HR Department Determine an Employee’s Salary?

Banking Finance

Have you ever gone through your salary slip and wondered how exactly your salary gets calculated.  Turns out, in more or less all the organizations, the payscale provided by the competition is taken as a benchmark. And then, your salary figure depends on what the company can offer to attract and retain the employees.

Other aspects like your value to the company, your education, skill set, etc. also play a major role. Read on to find out exactly how the HR of a company determines your salary figure!

How is the Salary of an Employee Determined?

The HR department of a company considers several factors before deciding on a final salary figure of an employee. These include the organization’s position, location of the job post provided, employee’s role, and so on. 

For instance, if the company is currently at a growing stage, then it might not be willing to pay more for a job profile. But, if the potential employee is important to the growth of the company, then they are bound to pay the standard premium. 

The usual way of fixing the salary of a new employee is by taking into consideration their prior salary. And offering a higher compensation than that. Else, if someone for a new position is to be hired, then other methods have to be employed.

In this case, the HR department needs to analyze the ongoing market value for the given position. Then, they need to match that figure as per the resources of the company allow them to. Such market research to procure salary information can be obtained in other ways as well.

These include sending out online classified advertisements, arranging a survey, etc. Moreover, asking relevant associations for advice and networking within the market could also prove to be beneficial. 

Once, the HR department has figured out the salary range, they need to further consider several other factors too. Let’s discuss these aspects in detail in the next subhead.

Read More: Calculation of dearness allowance in your salary slip

Factors Considered by the HR to Determine the Salary of an Employee

Several aspects come into play while the HR Department tries to determine their employees’ salaries. While these may vary from one company to another, there are some general factors that every organization considers. Let’s have a look at them:

1. Demand

Suppose an area or a city has an abundant number of skilled engineers, then the job profile might not pay out a premium price. This is because the skilled person is easily available and the company has a lot of options. In this scenario, the supply is much more than the demand for employees and so, the salary band has to be quite wide. 

Competition among potential employees and the skill set required also play a secondary role here. Similarly, if the demand is high and the supply is low, then the pay scale, as a result, would be high.

2. Skill Set

You might already know that your salary range depends majorly on your skillset. In fact, your Cost to Company is directly proportional to your skillset. So, job profiles that require more skills in an employee pay more. On the other hand, general positions, like administration pay less.

3. Location

The location of your job posting is also quite important. People working in the same position will have different pay scales if they are posted at different locations. This is because the cost of living depends on the location you have to stay for the job. 

Jobs in urban areas, cities, and metropolitan locations attract higher salaries. On the other hand, employment in less developed areas attracts low payouts.

4. Experience

Your basic salary also depends on how much experience you have garnered in the industry you are working in. Some job profiles often screen only those candidates who have the required experience level in the industry. And so, within a pay range, an employee’s salary depends upon the amount of experience they have.

5. Education

Your degree and your overall education also play a huge role in deciding what your salary figure should be. So, if you have earned a degree from highly esteemed institutions like IIT, IIMs, etc. then you’ll attract higher pay scales, in general.

6. Inflation

Your salary as mentioned in the salary slip should be enough to compensate for the rising inflation. But, as the rate of inflation is increasing by the day, the purchasing power of the employee’s salary decreases.

So, to attract potential employees, the HR needs to make sure that your salary is adjusted as per the inflation rate.

7. Bonuses

Bonus too forms a part of your salary slip. And any well-reputed company will reward its employees with bonuses at specific periods. The basis for providing a bonus might include a lot of things. But, it is mainly based on the employee’s performance, attaining goals, etc. Some companies might also share the overall profit made equally with all the employees.

8. Previous Salary

The easiest way of fixing the salary payout is checking their previous salary from their salary slip provided by their last employer.  After this, HR might offer a certain hike on this amount to increase the salary.

The employee could also negotiate his new salary with HR while switching to a new job. For this, they may use the components of the previous salary slip as reference. The employee is also asked about their salary expectation. This helps the HR department verify if the company is at a position to provide the same.

Final Thoughts

So, we have seen that companies calculate their employees’ salaries after taking into account plenty of factors. These comprise of comparable salaries in the industry, employee’s education, experience, and so on. But, keep in mind that the salary figure they offer is not the final one. You still have some room left to negotiate your salary.

Make sure to leave no stone unturned and extract the best possible deal. It is recommended that you decide a figure before even sitting for the job interview. And ensure that the salary you settle for is the right value for your skillset.