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This Tool Can Help You Tell If You’re Paying Employees Too Much–Or Not Enough

Financial health is a lot like maintaining a certain body weight. You can make $100,000 a year and live paycheck to paycheck. Or make $40,000 a year and consistently put money into savings. As with calories consumed and calories burned, financial stability eventually comes down to the difference in how much you earn and how much you spend.

Even so, broader guidelines are at least somewhat helpful in determining where people stand — especially if those people are your employees.

After all, your employees are smart. They understand market conditions, financial constraints, revenue shortfalls, and increased competition. They understand when you can’t pay top-of-market wages. What they don’t understand is when they don’t feel fairly compensated.

Pew defines middle-income households as earning between two-thirds and twice the median household income, adjusted for household size, for a specific area.

If you live in Palo Alto California, the median income is significantly higher than the national average — and so is the cost of living — so the two-thirds threshold is much higher than if you live in, say, Farmville, Virginia. And of course the more people in your household, the higher your income will need to be.

Under those parameters — and using data collected prior to Covid-19 — Pew determined that 52 percent of U.S. adults live in middle-class households. Upper-class households make up 19 percent of the total, and 29 percent fall into the lower-income category.

Click below to use the calculator. Enter your state, metropolitan area, household income before taxes, and the number of people living in your home.


You may be surprised by the results. Where I live, a family of four needs an income of at least $54,500 to be considered middle class.

That’s the real value of the Pew calculator. Knowing where you stand is interesting but hardly important.

Finding out you land in the lower class? Or in the middle class? That knowledge doesn’t change your day-to-day financial life. Again, what you earn matters, but what you do with what you earn matters more.

But the calculator can help you get a better general sense of how you pay your employees, and whether it at least provides a relatively livable wage.

And serve as a reminder to work on improving other ways to “compensate” your employees. Flexible hours. Flexible benefits. Better developmental opportunities.

While current business conditions may not allow you to provide competitive pay, you can provide other things that matter: Recognition. Respect. Fulfilling work. Opportunities for development and advancement. A real sense of purpose and meaning.

The happiest and most engaged employees feel they work for something more than just money. It’s your job to provide that sense of belonging and meaning. Without meaning, your employees are left to work solely for a paycheck.

And when that’s the case… they’ll constantly be on the lookout for a place that provides a better paycheck.

And who could blame them?

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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