Dr. Paul Borosky, DBA, MBA
Business Plan Writer & Financial Projections
How Do You Set Pay Ranges for Small Business Employees?
If Raises Go to Whoever Asks, Your Best People Are Underpaid.
Wages got set one at a time: a number on the day someone was hired, a bigger number on the day someone asked. Now your manager wants to know why a newer employee earns more than he does, and you cannot explain it. Business plan writer Dr. Paul Borosky, DBA, MBA, walks you through how to set fair pay ranges you can defend to the whole team.
Last Updated: 11/08/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Definition
What Do Pay Ranges Mean?
Short Answer
A compensation structure sorts a company’s roles into a small number of levels, and each level gets a pay band with a floor and a ceiling. The range comes from what the job is worth to the business and what similar jobs pay in the local market. Where each person sits inside the range depends on experience and performance, not on who asked first.
Fair pay = a few job levels + a range for each + a clear reason for where each person sits
Doctor Owl, in Plain English
“Those wages were not set by you. They were set by whoever asked. Build a few bands, place everyone in one, and explain it.”
How This Guide Works
Need the answer fast? Read the Short Answer above and the numbered steps. Want the full picture? Follow Frankie, a fox with four pizza trucks from Dr. Paul’s Fabled Forest Business School Series, as his best manager asks why others earn more. His story shows up in a few short gold notes along the way. The math sits in one section, clearly marked.
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Meet Frankie Again: The Talk About the Title
Some lessons stick better as a story. Dr. Paul’s Fabled Forest Business School Series teaches business through a forest full of small business owners. Doctor Owl, a dry-witted consultant who lives in the Lone Oak, helps them fix the same problems real owners face.
Today he is in Fast Frankie’s office when Marco, the marten who runs the schedule and every truck, walks in with a sheet of paper and his ring of keys. Marco has listed every person on the payroll and what they earn. He has also seen a help-wanted notice from a juice bar chain offering managers more than he makes. He would like to talk.
Why It Matters
What Makes Small Business Wages Become Unfair Over Time?
Most small businesses do not have a pay system. The owner sets each wage on the day someone is hired, based on how badly the business needs them that week, and raises it on the day someone asks. Over time, the wages reflect who asked, not who does the most valuable work.
Employees eventually compare notes. When they do, the quiet ones who never asked find out they are paid less than newer, louder coworkers. Good people leave over that, or stop going the extra mile. A compensation structure makes pay explainable.
In the Fabled Forest
Dex, a cook, had asked twice and gotten 22 coins a week. Opal, who had run the ovens for three years and never asked, was on 20. The driver with the longest service, an old grey squirrel, made 12. The newest driver made 15. Marco, who ran everything, was on 24, and a juice bar chain was advertising 26 for managers.
Build the Ranges
How Do You Set Pay Ranges for Employees?
- Group the jobs. Three or four levels are enough for most small businesses: entry, skilled, lead, manager.
- Check the market. What do similar jobs pay locally? See market rate. Check any legal floor, such as minimum wage.
- Set a low and a high for each level. The range should cover a new person and an experienced one.
- Place each person inside their range. Use experience, performance, and length of service.
- Do not cut anyone. If someone is above their new range, hold their pay rather than lower it.
In the Fabled Forest
Frankie and Marco set three levels: drivers at 12 to 15 a week, skilled jobs like the ovens and the register at 20 to 25, and the manager at 26 to 30. Frankie made one promise first: no one would take a pay cut because of how he had handled wages before.
Tell the Team
How Do You Explain Pay Ranges to Employees?
Post the ranges where everyone can see them. Then talk to each person privately: their level, their range, where they sit in it, and what moves them up. People rarely need the highest wage. They need to know the system is fair and that asking is not the only way to get a raise.
Remember that pay is only part of the package. Time off, training, a path up, and a reliable schedule matter too. See total rewards.
In the Fabled Forest
Marco posted the three bands next to the schedule. Frankie told every worker himself where they stood. The young hare had spent the weekend sure he would be cut and thanked him twice. The old squirrel, now at the top of the driver range, was at truck one twenty minutes early the next morning, polishing the mirrors.
The Numbers
What Did Fair Pay Cost the Business?
Here are the changes when Frankie put everyone into ranges.
| Person | Before | Range | After |
|---|---|---|---|
| Marco, manager | 24 | 26 to 30 | 28 |
| Opal, ovens | 20 | 20 to 25 | 22 |
| Dex, cook | 22 | 20 to 25 | 22 |
| Old squirrel, driver | 12 | 12 to 15 | 15 |
| Newest driver | 15 | 12 to 15 | 15 |
Step 1: Weekly cost. About 10 coins a week more across four people: Marco, Opal, and two drivers.
Step 2: Yearly cost. 10 × 52 = about 520 coins a year.
Step 3: The comparison. Losing Marco to the juice bar chain would have cost more than that in a single bad week of late trucks and lost lunches. Your version: total the raises a fair structure needs, then compare with what one key resignation would cost.
Illustrative numbers in forest coins, weekly pay, from the book. Use local market rates for your area.
Step by Step
How Do You Build a Small Business Pay Structure?
Four steps you can finish in an afternoon.
List every role and current wage.
Everyone on payroll, side by side, in one sheet.
Group the roles into a few levels.
Similar work, similar responsibility, same level.
Set a range for each level.
Use local market pay and what the role is worth to you.
Place each person and tell them.
Explain their level, range, and what moves them up. Post the ranges.
In the Fabled Forest
Doctor Owl’s scroll for Frankie summed it up in three short steps: sort the jobs into groups, give each group a range, and tell every worker where they stand.
Frankie’s Full Story
Did Marco Stay?
This page gives you the short version. The book gives you the whole conversation: a marten who decided in advance to stand up, a payroll sheet in careful handwriting, a help-wanted notice for bar managers, the cook who never asked, and a squirrel polishing mirrors at dawn.
Every chapter of Human Resources for Small Businesses works the same way. One owner, one problem, one real idea you can use on Monday, plus a one-page worksheet to do it.
A Business Plan Writer’s View
How Should Payroll Ranges Show Up in Projections?
Dr. Paul Borosky, DBA, MBA · Business Plan Writer
In financial projections, Dr. Paul builds payroll from ranges, not single numbers. Each role is placed at a level with a low and a high wage, and planned raises move people through their range on a schedule. That makes the payroll line realistic over three to five years, instead of flat. Lenders notice flat payroll, because it assumes nobody ever gets a raise. He also checks the ranges against local market data and any minimum wage changes ahead, so the projections do not understate the cost of keeping good people. A pay structure in the plan also signals to lenders that the owner manages people, not just sales.
FAQ
Still Have Questions About Setting Pay?
How do you set pay ranges for small business employees?
What should I do if an employee is paid above the new range?
Should I tell employees the pay ranges?
Keep Going
Want to Go Deeper on Paying People Fairly?
This is foundation 7 of 20. These pages build on it. New to a term on this page? Every one is in the human resources glossary.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author with 14+ years of experience and 1,000+ clients served. Need your staffing and payroll written up for a lender? See business plan writing services.
This page is for general educational purposes only. It is not legal, financial, employment, or other professional advice. Figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.