The Complete Guide To Salary Structures

Most small companies do not decide to pay inconsistently. It happens one offer at a time. A candidate negotiates hard and lands above a colleague who has been doing the same job for three years. A manager promises a raise to keep someone from leaving. Two years later nobody can explain why any given person earns what they earn.

A salary structure fixes that by deciding the rules before the next offer, not during it. This guide explains what salary structures are, the main types, how to build one from market data, and how to place, approve, document, and review every pay decision against it. It includes a copy-ready salary band worksheet, the four formulas you need, and a labelled hypothetical worked example.

What Is a Salary Structure?

A salary structure is a documented framework that groups jobs into levels and attaches a pay range to each level. Instead of pricing every role individually and from scratch, you price a small number of levels, then assign jobs to them. The structure answers three questions in advance: what a job is worth, how far pay can move inside that job, and who approves anything outside the rule.

A working structure has four parts. Job families group related work, such as finance, support, or engineering. Levels describe increasing scope and responsibility within a family. Ranges give each level a minimum, a midpoint, and a maximum. Rules govern where a new hire starts, how someone moves through a range, and what happens when a manager wants an exception.

Salary structures apply to salaried roles, but the same logic governs hourly rates. If the split is not clear in your company, the difference between salary and wages is worth settling first, because it changes how overtime, timekeeping, and range design work for those jobs.

The structure is a decision tool, not a payroll system. It tells you what to pay. Your payroll process then executes it, and the payroll register records what actually went out. Keeping those three separate saves a lot of confusion later.

Types of Salary Structures

There is no single correct model. The right choice depends on how many distinct jobs you have, how fast people move between them, and how much administration you can realistically sustain. These are the structures small and mid-sized employers actually use.

Structure	How it works	Fits when	Watch out for
Traditional graded	Many narrow grades, each with a tight range and small steps between grades	Work is well defined and progression is predictable	Frequent promotions needed just to give a normal raise
Broadband	A few very wide bands covering several traditional grades each	Roles shift often and managers need latitude	Wide bands hide inconsistency unless placement rules are strict
Market-based	Each job is priced against survey data and given its own range	Jobs are distinct and compete in different labour markets	Heavy maintenance; needs a benchmark refresh discipline
Step or seniority	Fixed steps within a grade, advanced by tenure or defined criteria	Public sector, unionised, or high-transparency environments	Slow to respond when the market moves quickly
Job family with levels	Parallel ladders per family, with shared level definitions across families	You want one company-wide level language	Level definitions drift unless someone owns them

Most companies under a few hundred people end up with a job family structure built on a small number of levels, priced against market data. It gives you one vocabulary for levelling and enough flexibility to price a scarce skill differently without inventing a separate system for it.

How To Build a Salary Structure

Build the structure once, carefully, and then maintain it. The order below matters, because each step depends on the one before it. Skipping straight to numbers is the most common failure; you end up benchmarking job titles rather than actual work.

Step 1: Group Jobs Into Families

Sort every role by the kind of work it does, not by who it reports to. Support, finance, sales, operations, and engineering are typical families. Keep the list short. Five to eight families is plenty for a company of under 200 people, and a long list makes benchmarking harder rather than easier.

Step 2: Define Levels by Scope, Not Tenure

Write a short definition for each level describing autonomy, complexity, and impact. A level definition should let two managers independently place the same job in the same level. Use observable criteria: who sets the priorities, how large the decisions are, whether the person guides others, and what happens when they are wrong.

Resist writing levels around the people you already employ. Levels describe jobs. If a level definition only fits one person, it is a job description with extra steps.

Step 3: Choose Benchmark Jobs

You do not need market data for every role. Pick benchmark jobs that are common enough to appear in survey data, that you employ several of, and that sit at different points on the ladder. Ten to twenty benchmarks will anchor a structure for a small company. Everything else is slotted relative to those anchors.

Step 4: Collect Market Data and Record Its Date

Federal wage statistics are a free and defensible starting point. The Bureau of Labor Statistics states that employers and compensation specialists use the data to determine equitable and competitive pay, to develop recruiting packages, and to make site selection decisions. The Occupational Employment and Wage Statistics program covers roughly 530 metropolitan and nonmetropolitan areas, states, the District of Columbia and selected US territories, across about 830 occupations in over 400 industries, so you can compare a role in your actual labour market rather than a national average.

Pull the figures from the published tables and write down which release you used. As of September 2026, the most recent OEWS reference period published is May 2025, with national, state, metropolitan area, and industry-specific tables. Recording the release date is not bureaucracy. A year from now, the only way to tell whether a range is stale is to know what it was built from.

Government data lags the market and does not capture equity, bonus, or fast-moving specialisms. Supplement it with paid survey data or recruiter feedback where the stakes justify the cost, and note the source against each benchmark so a future reader can tell which numbers are solid.

Step 5: Set a Market Reference Point

Decide, deliberately, where you intend to sit against the market. Paying at the median is the common default. Paying above it is a decision to buy scarce skills or lower turnover; paying below it is a decision you should only make knowingly, with something else in the package compensating for it. Write the choice down, because it is the single assumption every range in the structure inherits.

Step 6: Build the Ranges

Each level gets a midpoint equal to your market reference point for that level, then a minimum and maximum derived from a chosen range spread. Junior levels usually get a narrower spread, because the work varies less; senior levels get a wider one, because individual contribution varies more. Adjacent ranges should overlap, so a strong performer at one level can out-earn a new joiner at the level above without the structure breaking.

Step 7: Write the Rules Down

A structure without documented rules degrades within a year. Record how a new hire is placed, what evidence justifies placement above the midpoint, who approves an out-of-range offer, how often ranges are reviewed, and what employees are told. The Equal Employment Opportunity Commission advises employers to determine the criteria that you will use to make compensation decisions and apply the criteria consistently. That is exactly what this step produces.

The Salary Band Worksheet

This is the working document the structure lives in. Build one row per level per job family and keep it under version control. Every column exists because a question gets asked later and someone needs to answer it from a record rather than memory.

The Four Formulas

These are the only calculations the worksheet needs. Set the midpoint and the spread, and the rest follows.

• Midpoint = your market reference point for that level
• Minimum = midpoint divided by (1 + spread divided by 2)
• Maximum = minimum multiplied by (1 + spread)
• Compa-ratio = an employee’s pay divided by the midpoint of their range

Spread is the distance from minimum to maximum expressed against the minimum. A 40 percent spread means the maximum is 1.4 times the minimum. Typical practice runs narrower at entry levels and wider at senior levels, but the exact figures are a design choice you should record rather than a rule handed down from anywhere.

Worked Example: A Three-Level Support Team

The figures below are hypothetical and illustrative only. They are not benchmark data and they are not a recommendation for any real job. They exist to show how the four formulas connect, so you can replace every number with your own before using the worksheet.

Level (hypothetical)	Midpoint	Spread	Minimum	Maximum
Support 1, associate	50,000	30%	43,478	56,522
Support 2, specialist	62,000	40%	51,667	72,333
Support 3, lead	78,000	50%	62,400	93,600

Take the Support 2 row. The midpoint of 62,000 divided by 1.2, which is one plus half of the 40 percent spread, gives a minimum of 51,667. That minimum multiplied by 1.4 gives a maximum of 72,333. An employee in that range earning 58,900 has a compa-ratio of 0.95, so they sit just below the midpoint.

Notice the overlap. The Support 2 maximum of 72,333 sits well above the Support 3 minimum of 62,400. That is deliberate and healthy. An experienced specialist can be paid more than a newly promoted lead without anyone having to break the structure to make it happen.

Placing People in a Range With Compa-Ratio

Compa-ratio turns a salary into a position. A ratio of 1.00 means the person is paid exactly the midpoint. Below 1.00 they sit in the lower half of the range, above 1.00 in the upper half. It is the fastest way to see whether your structure is being applied consistently across a team you did not personally hire.

Position in range	Typically describes	What to check
Below the minimum	A green-circled rate, usually a legacy placement	Set a dated plan to bring the person into range
Lower half of the range	New to the level, still building the full scope	Confirm there is a visible route toward the midpoint
Around the midpoint	Fully performing the level as defined	This should be the most populated part of the range
Upper half of the range	Consistently exceeding the level, or scarce skills	Ask whether the job has actually grown into the next level
Above the maximum	A red-circled rate, often after a restructure	Document the reason and the approach to future increases

If most of a team clusters at the bottom of the range, either your levels are too generous or your raises have fallen behind. If most cluster at the top, the level definitions have probably drifted below the work people are actually doing. Both are structural signals, not individual performance signals.

Approvals, Exceptions, and Pay-Equity Checks

Exceptions are not a failure of the structure. An undocumented exception is. Decide in advance who can approve an offer above the midpoint, who can approve one above the maximum, and what written justification each requires. The approver should never be the hiring manager making the request.

Documentation is also a compliance control. The EEOC advises employers to ensure employees understand your compensation rules and policies, consistently enforce the policies, and update the policies, as needed. Its small-business guidance also recommends that you consider documenting decisions that affect pay, including starting pay, bonuses, raises and other adjustments, and it advises employers to retain payroll records for at least three years.

Run a pay-equity check each time you refresh the structure. The mechanics are simple: within each level, compare compa-ratios across demographic groups and look for patterns you cannot explain from documented criteria. An unexplained pattern is the thing to investigate, and the investigation is far easier when every placement already has a recorded reason and approver. Compensation decisions must not be based on protected characteristics, and pay-equity obligations vary by jurisdiction, so take qualified legal advice for the places you actually employ people.

Communicating and Reviewing the Structure

You do not have to publish every number to get the benefit. Decide what level of transparency you can sustain and then be consistent about it. A common middle position is to tell each employee their level, their range, and how progression works, without publishing the whole matrix. The worst option is a structure that exists but that nobody can ask about.

Brief managers before employees. A manager who cannot explain why a range is what it is will undermine the structure in the first difficult conversation. Give them the level definitions, the reference-point decision, and the escalation route for an exception.

Set a review cadence and keep it. An annual re-benchmark of your anchor jobs is a reasonable default for most small companies, with an off-cycle review for any role where you are losing candidates on pay. Line the review up with your planning calendar and with the pay periods in a year you actually run, so increases take effect cleanly.

Finally, remember that a range is a gross figure. Employees experience the number that lands in their account, so anyone explaining a structure should be comfortable with the gross pay and net pay distinction before the conversation starts.

If you would rather start from a documented base than a blank page, the HR Payroll Policies and Procedures Manual provides editable compensation and payroll policies, forms, and procedures you can adapt. Customise the definitions, approval authority, forms, and legal references for your own jurisdiction before adopting anything.

Frequently Asked Questions

What Does Salary Structure Mean?

Salary structure means the documented framework a company uses to group jobs into levels and attach a pay range to each level. It sets a minimum, midpoint, and maximum for every level, plus the rules for placing people in a range, approving exceptions, and reviewing the figures.

What Are the Different Types of Salary Structures?

The common models are traditional graded structures with many narrow grades, broadband structures with a few wide bands, market-based structures that price each job against survey data, step or seniority structures that advance on defined criteria, and job family structures with shared level definitions across families.

What Is the Most Common Pay Structure?

There is no single structure that every employer uses, and the mix varies by sector and size. Among small and mid-sized private employers, a job family structure with a small number of levels priced against market data is a frequent choice, because it gives one levelling vocabulary without requiring a separate system for each role.

How Wide Should a Salary Range Be?

Range spread is a design choice, not a fixed rule. Narrower spreads suit entry-level work where output varies little between people, and wider spreads suit senior work where individual contribution varies more. Whatever you choose, record the spread for each level and make sure adjacent ranges overlap.

How Often Should You Update a Salary Structure?

An annual re-benchmark of the anchor jobs is a reasonable default for most small companies, with off-cycle reviews for any role where you are losing candidates on pay. Record the source and reference period of the data behind each range, because that is the only reliable way to tell later whether a range has gone stale.

A salary structure earns its keep the first time a manager asks for an exception and you can answer from a documented rule instead of a negotiation. Group the jobs, define the levels, price the anchors against dated market data, build the ranges from the formulas, and write down who approves what. Then review it on a schedule you can actually keep.