What and how you compensate your employees includes much more than the direct amount on their paychecks each month. When determining how you are going to pay your employees, there are several things to consider. Below is a quick guide to creating a compensation structure that fits your business.
Step 1: Determine if the Position Will Be Non-Exempt or Exempt
Non-exempt employees are generally paid on an hourly basis and must be paid overtime wages (one and a half their regular pay rate), while exempt employees are usually paid on a salaried basis (although not always), are not compensated based on the number of hours worked and do not receive overtime pay. Don’t make the mistake of misclassifying to avoid overtime. The tricky part here is that there are different standards for determining an employee’s status, and misclassification can be costly.
Familiarize yourself with the Fair Labor Standards Act (FLSA) (www.dol.gov), which provides salary and duties tests for all levels. Also look to see what your state’s standards are, and make sure you adhere to the strictest of the two (i.e., California’s standards are more strict than the federal standards). If you need more help determining the status of your employees, give us a call—we can help you through the finer points of current regulations.
Step 2: Set a Salary That Fits
Search job sites for positions that match yours and locate the salary information. You can also view one of the many salary calculators online or contact professional associations for salary studies and trend reports. Before making a final decision, look at how the position fits within your company and determine its value based on how critical the position is to your business’s success. And be careful not to think of it in terms of “just” the tasks they handle, but how the tasks they handle help the business profit. The best strategy is to set a salary range, rather than a specific number, and adjust it based on each candidate’s experience.
Step 3: Decide if You Will Use Commissions
If you have revenue-producing staff members, commissions can be a useful tool to motivate them to bring in more business. Make the commission structure clear regarding what they will be paid for, how much they will be paid for these efforts and in what timeline. It’s generally a good idea to also give these individuals at least a base salary so they have a good starting point.
Step 4: Consider Offering Bonuses
Whether or not you use commission-based pay, you may want to consider bonuses for high performers. Bonuses are a great way to motivate employees, but to be effective, they must not be guaranteed payment, and they should have set benchmarks. For example, you could give bonuses to all employees who successfully complete a project. Or, employees who bring in a certain number of new clients could be offered incentive bonuses.
Step 5: Look at Your Benefits Package
A recent national survey by Ask.com found that 95 percent of Americans consider a job’s perks and benefits before accepting an offer—beyond that of the base salary. Sometimes a slightly lower salary can be offset with good health benefits, retirement benefits, and other perks such as a gym membership. These additional benefits are part of the overall compensation package and should be included in your recruiting strategy and considered the cost of employing each staff member. Also, make sure you consider long-term expenses, as well as today’s direct costs, of each benefit.
Creating your compensation structure is a delicate balance between meeting your staff members’ expectations and considering your company’s financial needs. Make sure your final compensation offering is competitive and can attract the right candidates for your position.