What are the Different Ways to Pay Your Staff?
Introduction
It is a fact of life that if your business has employees, they need to be paid! There are a variety of different ways to calculate the wages that you pay your staff. The specific type of payment you use can have a significant affect on many areas of your business, including the motivation of your staff, the administration costs of your payroll, and the efficiency of your employment structure.
The following are the most common ways of paying employees, and the benefits that they can bring to your business.
Salary
The simplest way to pay your employees is on a fixed salary; this is where your employee earns a specific figure in a year, which is then divided over each payroll.
For example:
1. An employee earns £12,000 in a year, and is paid monthly.
So, £12,000 divided by 12 months equals £1,000 per month.
2. An employee earns £12,000 in a year, and is paid weekly.
So £12,000 divided over (for example) 52 weeks equals £230.77 a week.
The salary figure almost always excludes tax, meaning that the employee will not actually receive the full amount each month/week. Bon use s and overtime pay are also not included in the salary figure, and also need to be calculated.
Advantages of a salary:
A salary figure is very simple to calculate, which means that the administration and calculation of the payroll is much simpler than with other forms of payment; which saves on accounting and administration costs.
With a fixed salary, an employee knows how much they will be earning each week or month, allowing them to have more control over their financial planning. This gives your employees a stronger feeling of financial security which can help improve their relationship with your company.
Disadvantages of a salary:
As overtime and bonuses are not included in the salary figure, these also need to be calculated on top of the basic salary before tax can be deducted. This minimises the benefit of the lower administration and accounting costs.
A major problem with salary based pay is the need to work out overtime payments. If an employee stays for an extra half an hour, do they get extra pay? If not, or if the system is poorly worked out, your employees may be left feeling that their extra work is not appreciated.
When should it be used?
Salary payment is normally most appropriate in jobs that have mostly fixed hours; and that do not require a large amount of sales or production (which may warrant variable/extra pay).
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