Because Small Business is Big Business

Employee Pay

employee payYour business is growing and you’re ready to add another employee. But what kind of employee pay should you offer? And are they hourly (non-exempt from overtime rules) or salaried (exempt from overtime)? Should you pay them a┬ácommission or some kind of bonus plan?

Here’s a 5-step plan to determining Employee Pay:

  1. Create a job description. It doesn’t have to be detailed – just an overview of what the person will do. Growing businesses may hire administrative help, a sales/business development professional, or some kind of technical person. Before you jump into an internet search, write down your own thoughts about the position, otherwise, you may use a template you find on the net that doesn’t fit well with your needs.
  2. Get acquainted with laws regarding pay (federal and state). Federal laws can be found at http://www.dol.gov/opa/aboutdol/lawsprog.htm. State laws can normally be found at your state Department of Labor site. Generally speaking, a position is salaried when it requires an advanced education or training or is involved in management or sales. Administrative and other support positions are usually hourly.
  3. Decide on bonus or commission. As a small business, you may not be able to pay as much as a larger competitor, so you might supplement a lower base wage with profit sharing. For sales positions, a commission structure may be appropriate. You can tie a bonus to virtually any position. The key is defining success metrics, then rewarding employees who achieve or surpass their goals. The first couple of years may be a bit of trial and error, since you may not know exactly what to measure or if your goals are too high or too low. The simplest approach is to give a 15-20% bonus of base salary; more sophisticated plans provide a range based on a combination of overall company profit and individual performance.
  4. Get salary information for positions in your region. There are several sources for salary/wage information. The Occupational Outlook Handbook from the Bureau of Labor Statistics (http://www.bls.gov/ooh/) gives ranges at the national level. You have to match your position to job descriptions on the site, often looking at a composite of 2 or 3 and using your judgment to determine what makes sense for your company and role. You can sometimes get an idea by looking at job postings that may provide pay information. The website glassdoor.com is sometimes a good source of pay information, although it’s self-reported by people that work or worked for a company and often focuses on larger companies.
  5. Develop a compensation strategy. Once you have your first position under your belt, sit down and make a longer term plan for adding positions. In the second chapter of my book, A Small Business Guide to Peak Performance Through People, I give guidelines for developing a hiring strategy. The important thing about a hiring and compensation strategy is to plan ahead and not rush through the process or you’ll find yourself making mid-course corrections that may demotivate your staff.

Adding staff to your small business doesn’t have to be an overwhelming or confusing endeavor. There are many resources available to help if you want to go it alone. Human resources or recruiting consultant can provide expertise that takes the pressure off of you and ensures you find the right individual to fill your spot.