Certified Public Accountants

The Inside Scoop on Employee Compensation

Small businesses struggle with countless tasks but hiring the right employees and finding ways to compensate them is by far one of the biggest stressors. According to Joseph Kilmartin, Director of Compensation at Salary.com, employers need to look past compensation alone and focus on the total rewards the position offers, which includes salary plus bonuses, benefits, paid time off and other non-monetary incentives.

Retaining quality employees is a difficult task. Benefits, salary, perks and other incentives can be a veritable minefield for employers to navigate to strike the right balance between paying employees fairly for their talent and skill sets and keeping those employees from their competitors.

Total compensation for an employee includes more than just salary, but also benefits, retirement contributions, paid time off, stock options, bonuses, and other perks.  While salary is important, there are many other ways to compensate employees for their contributions without topping out your budgets.  In an NPR report on men in the workforce, Generation-Y (those born between 1980 and 2000) men interviewed were found to be more attracted to a flexible work schedule and improved family time over higher salary and longer work days.  With 300,000 Baby Boomers (those individuals born between 1946 and 1964) retiring each month, employers need to start rethinking their workforce and planning for the demographic shift to a younger workforce with a different set of social expectations and morays. Recently, these changes could be seen in a very public forum when New York Met’s Daniel Murphy missed the first two games of the 2014 season as paternity leave to be with his new born son and wife.

Even as times continue to change, other modes of business operations remain on a steady course.  Keeping employees happy, increasing profitability and managing the day to day business can add up to a full day for business owners. Knowing how to classify your employees is a critical determination that leads directly to how they should be compensated. There are two types of employees in a business; exempt and non-exempt.  Exempt employees are paid a salary that is fixed and not based upon the number of hours worked each week.  They often receive a higher level of compensation and benefits, but non-exempt workers can make more money by working more hours and receiving overtime pay for any hours worked over 40 in a work week. Bear in mind, that each job, regardless of who is performing the job, must provide the same pay range and cannot offer a higher maximum pay to one employee over someone else doing the same job.

Steps you can take to retain and pay your employees fairly:

  1. Research – Finding competitive salaries can be as easy as flipping through compensation surveys such as salary.com and job posting sites like Monster and Indeed.com. Often the salaries are updated annually and adjusted for cost of living and other economic changes. Once you are armed with adequate research, you can craft job descriptions to further clarify how the employee will contribute to your organization.
  2. Trade groups / industries – These organizations exist to support industry-specific companies and utilize the strengths of collective resources such as human resources, training, work force development, and other human capital issues. Associations will often conduct industry surveys and provide their data, sometimes for a fee, to their membership. Arming yourself and your leadership with trends and information will enable better decision making.
  3. Incentives and bonuses – While everyone loves to receive a bonus, these ‘surprise’ payments can cause big problems if they aren’t managed appropriately.  Outline how incentives or bonus payments will work and by what criteria they will be measured and paid. Typically, employees should receive bonuses for efforts above and beyond everyday performance especially if his or her efforts have helped the company exceed profitability goals for the year.
  4. Costs – Fully investigate a benefit’s costs before rolling it out to the employees.  Try to review the detriments of offering or not offering a benefit both in the short term and more importantly, in the long term.  Constantly adding and then taking away benefits can severely impact employee morale. Even small benefits like free break room coffee, once removed can quickly turn even the most upbeat employees negative.
  5. Other compensations – Employees are often more satisfied with paid time off than an increased salary.  Try evaluating what makes your employees happy by taking surveys and even holding smaller team meetings to ask about their jobs, work-life balance and even, aspirations.  The time you spend will be well worth the investment

Staying competitive in a tough job market means planning time to review your pay rates and benefits packages at least once every other year.  You don’t need to review all your positions at once, break the positions into groups and tackle a manageable amount each time. To learn more about how your compensation package ties into other aspects of your business and your profitability, talk with us today.



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