There are a few different methods of paying your employees, and while they may have similarities, they each also have their own implications for your business and its employees. 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 will impact your finances and your reporting requirements.
Read on to learn the differences between the main ways of earning money in the workplace.
More information: Fair Work Australia
Wages
Many positions offer an hourly wage in exchange for work. An hourly wage might be $22.75. So if the employee works 7 hours that day, they would be compensated $159.25 for that day.
There are minimums set by law which vary depending on where the business operates. Typically, the minimum wage is directly related to the cost of living in that area.
Generally paying your employees a wage means there are a set number of hours that can be worked in a week, and working beyond that maximum entitles the employee to a higher rate of pay. There may be premiums associated with working undesirable shifts, or an even higher rate of pay that employees are entitled to for working on holidays.
Because of the number of hours worked, the specific days worked, and overtime, the amount an employee will potentially earn each year can vary widely when paid with hourly wages.
Salary
A salary is another way of paying your employees. It is an agreed-upon annual total, where a certain number of hours worked per week is expected. There will be other requirements outlined, such as how many days per week are expected, what the standard hours of work are, whether the salary includes things such as leave loading or penalties for working on Saturday.
Depending on the schedule, the total salary is divided into equal payments for each pay period. Often, a salary is 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 $70,000 a year once a week over 12 months, you would pay $1346.15 each payment, not accounting for tax and superannuation.
How a business manages its payment schedule will vary.
Any other pay, such as overtime worked, commissions earned, or bonuses, are separate from salary. Many companies don’t offer overtime pay for extra hours worked, but they may offer commissions or bonuses for performance.
It’s important to be aware that if are paying your employees a salary that doesn’t mean you have free reign and can require them to work an unreasonable number of hours. Their salary must still satisfy BOOT (Better Off Overall Test). This effectively means that if you take it back to the minimum requirements of the Award and pay based on that, they must be better off overall under the salary arrangement.
Commission
This is a form of compensation that is often based on performance. The amount a team member receives can vary drastically, depending on how well they perform in a pay period.
Commission is typically a calculated percentage of the value of goods or services sold. It is meant as an incentive to drive team members to make sales. For example, you may offer to pay $1,000 as a commission for each car sold. An employee who sells 10 cars in the pay period would receive $10,000 commission.
All earnings made by commission are counted as taxable income.
Some salaried or hourly positions offer a commission on top of regular earnings. However, some positions, may be based solely upon commission. This means that if the employee doesn’t sell anything, they don’t get paid. It’s very important to check with your Award before going down this path to ensure that you’re allowed to employ under a commission only arrangement. Otherwise you’d likely pay the minimum wages or salary, plus commission based on certain outcomes.
Bonuses
A bonus is a compensation type that is not guaranteed. It is usually tied to some kind of business goal, usually driven by sales or performance. A bonus might be awarded on an individual basis, or for a team or other work group.
The idea behind a bonus is to create an incentive to meet a specific goal. It is rewarded when the goal has been reached, or evaluated at specific times. Bonuses are offered on top of a wage, salary, or commission.
Because of the unofficial structure, bonuses are loved by some and loathed by others. It can be motivating to receive a bonus, as it’s completely separate from what an employee already earns. However, it can also leave employees feeling disgruntled if they feel they weren’t supported well enough to reach the goal and therefore missed out on the bonus. If the goals are unrealistic, employees may also struggle with motivation even if they are offered a bonus.
Read more: Reasons why you should stop doing your own payroll
Final Thoughts
Whatever payment structure your business follows, make sure you are consistent and fair as an employer, and follow all applicable laws. Contact us to learn more about different forms of compensation and what they mean for your bottom line.
