How much should you pay your team? It is one of the most important questions for any small business owner.
Pay too little and you risk losing good people.
Pay too much and you squeeze your profit and cash flow.
Many business owners tell us:
“I don’t know if we’re overpaying.”
“I want to reward loyalty, but margins are tight.”
“I just follow what others in the industry are doing.”
The problem is that guessing can cost you.
Let’s break down how much you should pay your team in Australia using compliance rules, financial logic and practical strategy.
Step 1: Start With Legal Minimums
Before discussing strategy, you must meet your legal obligations.
The Fair Work Ombudsman sets minimum pay standards under the National Employment Standards and modern awards.
Most employees are covered by an award which determines:
- Minimum hourly rates
- Penalty rates
- Overtime
- Allowances
- Leave entitlements
You must pay at least the applicable award rate.
The Fair Work Commission also reviews and sets the National Minimum Wage annually.
Compliance is not optional.
Underpaying staff can result in backpay claims, penalties and reputational damage.
Step 2: Include Superannuation in Your Calculations
When asking how much should you pay your team, remember wages are not the full cost.
The Australian Taxation Office requires employers to pay Super Guarantee contributions.
As at 2024, the Super Guarantee rate is 12 percent of ordinary time earnings.
So if an employee earns $80,000 per year:
- Super at 12 percent = $9,600
- Total cost = $89,600 before other costs
Ignoring super leads to cash flow surprises.
Step 3 – Understand the True Cost of an Employee
Beyond wages and super, consider:
- Workers compensation insurance
- Payroll tax if applicable
- Leave loading
- Training and onboarding
- Software licences
- Equipment
- Uniforms or tools
A general rule of thumb is that total employment cost is often 1.15 to 1.25 times base salary.
When calculating how much should you pay your team, always use total employment cost, not just salary.
Step 4 – Align Wages With Revenue Capacity
This is where many small businesses struggle.
Ask yourself:
- How much revenue does this role generate?
- Or how much operational efficiency does it create?
- Can the business sustain this wage in slower months?
A healthy small business often aims to keep total wages between 30 percent and 50 percent of revenue, depending on industry.
For example:
If your business generates $1,000,000 in revenue and wages total $700,000, margins may be too tight unless pricing supports it.
Understanding this ratio helps answer how much should you pay your team without compromising profitability.
Step 5 – Consider Market Rates
Compliance sets the floor.
Market competition sets expectations.
If you consistently lose good staff to competitors, review:
- Base pay
- Incentives
- Non financial benefits
- Flexibility
- Career development
Sometimes small increases in pay improve retention and reduce turnover costs.
But increases must be backed by financial modelling.
Step 6 – Link Pay to Performance
If you want clarity around how much should you pay your team, introduce structure.
Consider:
- Clear KPIs
- Bonus structures
- Commission models
- Profit share arrangements
For example:
A sales employee might receive a base salary plus commission once revenue targets are exceeded.
This aligns cost with performance.
It also motivates growth.
Common Mistakes When Setting Wages
Here are common errors we see:
- Paying Based on Emotion
Loyalty matters. But raises must align with profitability. - Matching Competitors Without Checking Margins
Your competitor’s pricing and cost base may differ. - Ignoring Future Cash Flow
Just because you can afford it this quarter does not mean it is sustainable year round. - Avoiding Difficult Conversations
Sometimes wages are too high relative to performance.
A Practical Wage Formula for Small Business
Here is a simple framework:
- Confirm award minimum
- Add super at 12 percent
- Estimate total employment cost at 1.2 times base salary
- Ensure total wages remain within a sustainable revenue percentage
- Link pay increases to measurable outcomes
For example:
If a role generates $200,000 in revenue annually and you aim for a 30 percent labour ratio:
Maximum sustainable total employment cost = $60,000.
Working backwards, that may mean a base salary of around $50,000 plus super and associated costs.
Numbers create clarity.
The Emotional Side of Paying Your Team
When asking how much should you pay your team, remember:
Your team depends on you for security.
But your business depends on profit to survive.
One client told us:
“I kept giving raises because I felt guilty. Then we couldn’t afford new equipment.”
Healthy businesses balance generosity with sustainability.
Pay well. But pay wisely.
When to Review Wages
Review wages:
- Annually after Fair Work updates
- After performance reviews
- When responsibilities change
- When revenue grows significantly
Do not wait until a crisis forces adjustment.
Proactive reviews reduce tension.
Ready to Review Your Wage Structure?
If you are unsure whether your team’s wages align with profitability and compliance, we can help you model the numbers.
Book a strategy meeting here.
Or download one of our free practical small business guides here.
Paying your team should feel structured and strategic, not stressful. With the right planning, you can reward your people and protect your profit at the same time.
