BENEFITS

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  • How to Compensate Employees: Base Pay & Beyond

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    Employee Base Pay: Key Considerations

    Compensation begins with a base pay of some kind. But how best to structure it—by the hour or week?

    It depends on what type of business you’re in, as well as how established your company is. Salaries are more typical for managers and employees in white-collar positions, while hourly pay is more common for temporary or part-time employees as well as consultants and workers in certain blue-collar jobs. When your company is just starting up, you might be more inclined to hire part-time rather than full-time staff, until you’re confident enough to staff on a full-time, permanent basis.

    It’s also important to consider that your core team of employees—the ones critical to your business’s basic operations and delivering on your company’s promise—should typically be full time.

    Commissions
    Commissions are most suitable for jobs that involve generating income -- often selling positions. Commissions give employees an incentive by rewarding them for their success in achieving objectives. Some jobs might have a base pay plus commission. Think about what makes the most sense for each position and for the company.

    How much do you pay?
    Another key question is how much to pay each employee or each position. Begin by establishing a minimum for your pay scale as well as a maximum. You could set the floor based on market rates. Also, be aware of state minimum wage rules, which you can find online via the U.S. Department of Labor website.

    As for deciding on a maximum, think about how valuable a person is to your company. Also, consider the competition. If you pay less, the best talent may seek employment with your competition. And, your existing employees may be tempted to jump ship.

    Finally, remember that you should hire for the long term, and provide a career path. Successful employees will want raises and promotions—and providing these will help to keep them satisfied and feeling appreciated. Pay fairly in the beginning, but realize you may have to offer more in the years to come.

    Also, make sure it is clear whether someone is an employee or a contractor. Employee misclassification has become a major focus of the US Department of Labor.

    Learn more at the U.S. Department of Labor website.

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    Game Plan

    • To find out whether it’s appropriate or legal to compensate a particular position through hourly wage or salary, and to learn more about the rules covering wages and hourly pay, you could consult with an employment lawyer.
    • To learn more about labor laws, visit the Department of Labor website.
    • To get more information about salaries and market rates based on position and geography, visit www.salary.com.
    • To learn more about how other small business owners feel about raising the minimum wage, check out the findings from the 2014 Small Business Success Study.