Compensation Methods

Methods used to compensate workers: Hourly Wages Salary Commission Piecework Independent Contractors

Hourly Wages Pay employees a set amount per hour of work. Can receive extra hourly pay for certain shifts, weekends, holidays, or overtime. Usually detailed rules on what duties are required while “on the clock”. Business responsible for recordkeeping, preparing employee tax forms, paying payroll and income taxes, and often provides benefits. May be set schedule or hours may vary.

Salary Pay employees a certain amount for a certain period regardless of hours worked. Often not eligible for overtime. Specific duties and performance expectations. Often professional or managerial jobs. Business responsible for recordkeeping, preparing employee tax forms, paying payroll and income taxes, and often provides benefits.

Commission Paid based on performance (sales, clients, services). Can have set hours for work or very little oversight. Commonly based on percentage of sales. May be direct employee or independent contractor. Pay varies month to month.

Piecework Paid based on production without regard to hours. Common in manufacturing. Pay based on a formula related to how much employee produces (parts, products, packaging). Most commonly direct employee - business responsible for recordkeeping, preparing employee tax forms, paying payroll and income taxes, and often provides benefits. Pay varies month to month.

Independent Contractor Paid based on completion of an agreed upon task. Control over schedule and methods used to complete task. Pay and schedule usually agreed to prior to work starting. Responsible for own records and tax payments and filing. Pay doesn’t include benefits. Pay often varies. Payment may not come until job is completed.

Questions Email me your answers to the following questions by the end of the hour. Many sales jobs are compensated using both salary and commission. Why would it benefit an employee to have a portion of their pay as salary? List three common professions that typically operate as independent contractors. Why are many professional and managerial positions paid by salary rather than hourly?