Deciding on pay can be a balancing act for employers.

On one hand, you want to reward staff for their hard work and encourage productivity, but on the other, you have to think practically about the costs to your business.

Pay can be a deciding factor for potential job candidates, so it's also a way to bring valuable skills and experience into your business.

To develop a viable structure for pay, there are a few different areas to consider.

Choosing a pay scheme

There are two main types of pay scheme: basic or incentive.

In a basic pay scheme, employees are paid a set sum at an hourly, weekly, monthly or annual rate. These are simple to operate, but might not incentivise workers to be more productive.

Incentive-based pay schemes base pay on performance, skills, results and/or profit. These can be used for all pay or in combination with a basic scheme, and can be short-term or long-term.

Legal requirements

Whichever pay scheme you use, you'll need to pay workers at least the national minimum wage.

This rate is different depending on their age, and whether they're an apprentice.

Bands Current rates for 2018/19 Rates for 2019/20
25 and over£7.83£8.21
21 to 24-year-old rate£7.38£7.70
18 to 20-year-old rate£5.90£6.15
16 to 17-year-old rate £4.20£4.35
Apprentice rate* £3.70£3.90

*For apprentices aged 16 to 18 or those aged 19 or over in their first year.

If your organisation employs 250 staff or more, you're also required by law to publish figures on the gender pay gap in your business.

Staying competitive

A high employment rate and changes in the labour market mean many firms face problems recruiting for the skills they need, with 44% of employers saying it became more difficult to fill vacancies in 2018.

Benchmarking your pay against the pay offered by competitors can help you attract and keep the right talent for your business.

You should also consider factors like regional differences, demand for your product or service, and how competitive the jobs market is for the skills you need.

It doesn't all have to be about salary, though - offering certain perks and benefits can often make the difference for a job candidate choosing your business over another.

This could include offering flexible working, or creating a good workplace culture.

Agreeing pay with employees

Most businesses review employees' pay annually, at the same time as performance appraisals.

Alternatively, you might want to rethink your appraisal system and conduct more reviews throughout the year, to create a stronger link between pay and performance.

Make sure your pay policy is communicated clearly to employees, so there's no confusion about what they can expect, and how their work is being rewarded.

Talk to us about setting and reviewing pay.