There is a range of methods that employers use to pay their Team Members. Wage, Salary, Commissions and Bonuses. While they may have similarities, they also each have their own implications for your business and Team Members. On top of that, there may be a blended model at play, in which you offer two types of compensation at once, such as a wage and bonuses.
How you pay your Team Members will impact your finances and reporting requirements.
Read on to learn the differences about the ways to earn money in the workplace.
Wages
Most entry-level positions offer an hourly wage in exchange for work. The hourly wage might be $20. So if the Team Member works 8 hours that day, they would be paid $160 for that day.
The minimums are set by law and generally, the minimum wage is related directly to the cost of living.
Typically, a set number of hours can be worked in a week, and working beyond that maximum entitles the Team Member to a higher pay rate. Certain premiums may be associated with working undesirable shifts or an even higher pay rate that Team Members are entitled to for working on public holidays or on their regular days off.
Due to the number of hours worked, the specific days worked, and over time, the amount a Team Member will potentially earn each year can vary extensively when paid with hourly wages.
Salary
A salary is the standard payment for upper-level positions and management. It is an agreed-upon annual amount, where a certain number of hours worked per week is expected, usually 35 to 40. Other requirements will be outlined, such as how many days per week are expected.
Conditional on the schedule, the total salary is divided into equal payments for each pay period. A salary is often agreed to as an annual figure, with each payment equally divided by the number of payments. If you pay a Team Member a salary of $90,000 yearly once a month over 12 months, you will pay $7,500 monthly, not accounting for any deductions or tax.
How a business manages its payment schedule will vary from business to business.
Other pay, such as bonuses, overtime, or commissions, are separate from salary. Many businesses don’t often offer overtime pay for extra hours worked, but they may offer bonuses or commissions for performance.
Commission
This is a form of compensation that is based on performance. The amount a Team Member receives can vary heavily, depending on their performance in that pay period, or a specified period.
Typically commission is a calculated percentage of services sold or the value of goods. It is meant as an incentive to drive Team Members to make sales. For example, you may offer to pay $2,000 as a commission for each car sold. A Team Member who sells ten vehicles in the pay period would receive a $20,000 commission.
All earnings made by commission are counted as taxable income.
A few hourly or salaried positions will offer a commission on top of regular income. However, some positions, specifically those in sales, can be based solely upon commission. This means that if the Team Member doesn’t sell anything, they won’t get paid.
Bonuses
A bonus is a type of compensation that is not guaranteed. Usually, it is tied to some kind of business goal, traditionally driven by performance or sales. A bonus can be awarded on an individual basis or for a team.
The idea for a bonus is to create an incentive to meet a specific goal. It will be rewarded when the goal has been evaluated at particular times or reached. Bonuses are offered on top of a salary, wage, or commission.
Bonuses have an unofficial structure; because of that, they are loved by some and hated by others. It can be encouraging to receive a bonus, as it’s completely separate from what a Team Member already earns. However, it can also leave Team Members feeling disgruntled if they feel they weren’t supported well enough to reach the goal and missed out on the bonus. If the goals are unrealistic, Team Members may also struggle with motivation even if they are offered a bonus.
Final Thoughts
Whatever payment structure your business follows, ensure you are a fair and consistent employer and obey all applicable laws.
If you have any questions, feel free to Join the conversation…