Hiring or Replacing an Employee? How Small Businesses Can Remove the Guesswork

reported, unreported, and allocated tips

For many businesses, payroll is the biggest expense.

For many businesses, payroll is the biggest expense. Typically, salaries can amount to between 15% and 30% of revenues, and for service-oriented businesses, salaries can be as high as 50% of revenues. Considering how massive payroll costs are, it’s surprising that less than half of companies have a compensation strategy.

So why do you need a compensation strategy?  The obvious answer is so that you don’t overpay for talent.  Overpaying an employee makes it difficult to hire and keep new, more talented employees because of the sense of inequity that’s created by seeing a lower-performing coworker being better compensated than you.  Not to mention the fact that overpaying an employee impacts your company’s bottom line not just once, but every single year.

Now, you might be thinking that on average your underpaid and overpaid employees just cancel each other out. The issue with this line of thinking though is that one of two things actually happens with underpaid employees.  First, underpaid employees who choose to stay invariably become less happy, less engaged, and less productive — and cancerous attitudes like that have a nasty habit of spreading among employees. And second, your good employees who are underpaid often just decide to quit.

And not only are you losing a good employee when this happens but now you have to replace them.  It costs businesses about one-fifth of a worker’s salary to replace the average worker. The cost of replacing an employee can be damaging for a small business, with the cost averaging 33% of that employee’s salary, according to the Work Institute. Zenefits’ Compensation Management app is a trailblazer in helping prevent this problem and solving others, including closing the gender wage gap and offering transparency and benchmark data to workers around pay scale and salary levels.

Compensation Management aggregates and anonymizes real data from the hundreds of thousands of small and medium-sized businesses (SMBs) using the Zenefits platform and various other sources to provide salary insights that help companies manage their people costs. It’s geared toward SMBs which comprise 99.7% of businesses in the U.S.: companies with fewer than 500 employees who hire 48% of American workers.

Prior to Compensation Management’s release in 2018, SMBs had to rely on inaccurate employee-reported data about salaries gathered by platforms like LinkedIn or Monster.com. Although other software exists, Compensation Management was the first affordable tool of its kind for SMBs.

In this article, we’ll look at one particular type of data that Compensation Management gives HR that can be useful in making decisions that help keep SMBs competitive.

Compensation Insights: Geography 

Zenefits Compensation Management offers HR something new and important to attracting the best and brightest: high-level insights on how geography impacts the salary.  For example, state-level data. Here we look at data on the states of California, New York, and Texas to demonstrate the capabilities.

Top-paying industries: different state, different story

In looking at this data, the first thing we asked was, what are the five top-paying industries? These industry classifications were developed by Zenefits:

  • Asset Management and Custody Banks
  • Investment Banking and Brokerage
  • Automobiles, Transportation Equipment, and Components
  • Technology Hardware, Storage, and Peripherals
  • Data Processing, Hosting, and Outsourced Services

An employer in the industry Asset Management and Custody Banks is JPMorgan Chase & Co.  Goldman Sachs & Co and Morgan Stanley & Co are employers in the Investment Banking and Brokerage industry.

Next we looked at the highest-paying industries in New York and got a different answer:

  • Asset Management and Custody Banks
  • Investment Banking and Brokerage
  • Real Estate
  • Banks
  • Insurance

Data from Texas showed yet another picture:

  • Asset Management and Custody Banks
  • Automobiles, Transportation Equipment, and Components
  • Internet Software and Services
  • Real Estate
  • Consumer Finance

In all three states, Asset Management and Custody Banks is the highest-paying industry. Investment Banking and Brokerage was second on the list in California and New York.

Industry Flavors 

In California, out of the five top-paying industries, three have a technology flavor. New York, on the other hand, has a flavor of banking and insurance. Texas has no consistent flavor, or one could say a flavor of diversity.

Types of jobs available 

The Zenefits Compensation Management tool also analyzed the data by job type. The common highest paying jobs in California, New York, and Texas are :

  • Systems Software Engineering and Programming
  • Computer Operations
  • Financial Control
  • Software and Applications Development

In California, another available and high-paying job is Applied Research; in Texas,  another is Network Administration and Operations. Tech jobs rank the highest on this list with a few exceptions like Financial Control and Applied Research.

Career levels

Along with job types, we also looked at the data through the lens of career levels. Zenefits classifies salary data by six levels:  entry, intermediate, senior, lead, department head and executive.

When we crunched the numbers, we found that the average salary for entry, intermediate, senior, and lead levels is highest for California; New York pays the most for department heads.

The chart above represents the mean salary benchmark for entry-level workers across various job families in the states of California, New York, and Texas.

Another example: a Computer Operations entry-level professional in California gets 12% more than what an entry-level professional in Computer Operations gets in New York. Similarly, an entry-level role in Network Administration and Operations in Texas gets 19% more than what an entry-level worker in Network Administration and Operations gets in New York. Department head jobs in Business Analytics and Information Technology are much more lucrative in New York than in California or Texas.

The chart above represents the mean salary benchmark across experience levels (entry, intermediate, and senior) in California, New York, and Texas.


The data also showed that the average salary hike when an employee moves from one career level to another was 19.4% in California and 16.9% in Texas. But out of the three states, New York had the highest raises at a whopping 22.3%.

Specifically, for early stage advancement, such as moving from entry to intermediate or intermediate to senior, California provides the highest raises at 23% and 18.4% respectively. For advancement at a more senior level, New York provides the highest increase in salary.

Zenefits helps SMBs make informed decisions about salaries

To get more of these high-level insights, try using the Zenefits’ Compensation Management tool. Immensely practical, Compensation Management helps companies align compensation practices with business goals to rapidly and efficiently make informed and consistent employee salary decisions.

Note: This blog was also written by Adithya Vinod who interned at Zenefits.