How Much to Pay Your Staff?

An OAA member recently asked me this question during a session on managing the growing agency. It’s a great question! And there are as many answers as grains of sand on the beach! But while I think there is no particular formula that works in all situations, let me give you what I think are some sound principles or guidelines.

The first thing the owner of a growing agency needs to understand is that all of the agency’s staff are employees. Many cash-strapped new agency owners try to make employees independent contractors. This is just about impossible. I have written elsewhere on this topic, but briefly, if you provide the workspace and equipment, set the hours, tell employees which companies they can write with, prohibit working with another agency and do most other things agencies do in terms of managing people, they are employees. If you try to make them contractors, you will get into trouble. Don’t like my opinion? Fine, but my advice is to see a lawyer. 

OK, with that out of the way let me say that all of the benchmarking survey results like the Best Practices Study and Growth and Performance (GPS) study show that clerical, support and customer service payroll should run about 18 to 22 percent of revenue. With benefits included, this payroll may be as much as 25% of revenue. 

So make support (and sales) staff employees. Bite the bullet and pay unemployment insurance, workers’ compensation and other benefits, but don’t exceed 25% of gross income for this and you should be OK. 

Next time some thoughts on compensation structuring…