3 Ways to Pay Your Employees: Hourly, Salary, and Commission
Sometimes, you decide whether you’ll pay your employees an hourly rate, a salary, or a commission on goods and services sold. Other times, your workers tell you how they would like to be paid. Either way, there are things to know about each pay type before you decide. Consider what makes the most sense for your company and the job.
If you pay a team member hourly, you’ll pay them a set rate per hour worked. Hourly wages make the most sense for jobs that are directly related to time in the workplace, like a retail salesperson or cashier.
There are several laws surrounding hourly rates, including state and federal minimum wages. You’ll likely also have to pay your staff members one and half times their hourly rate for any overtime hours worked above 40 hours in a workweek. Because workers can earn overtime pay, hourly wages benefit anyone who regularly works a lot of hours.
Overtime rules can be complicated. Learn more about paying your team overtime.
Salaried employees are paid a set amount per year. You’ll divide their annual salary by the number of pay periods in a year to determine each paycheck, which will be the same each pay period, regardless of how much time they worked. Salaried team members are usually paid for days they do not work, as outlined in your paid time off policy.
Typically, you’ll pay your employees a salary if they’re in a management position or their work is tied to results.
Salaries benefit your staff because they’ll always know how much their paycheck will be, so they can create a personal budget without worrying that their paycheck won’t cover everything.
Commissioned employees are paid based on the quantity of goods or services they sell. Their pay equals a percentage of the revenue they are directly bringing in. Consequently, a commission-based paycheck amount can vary from pay period to pay period.
Paying someone by commission makes sense when their job is directly tied to revenue, and it can benefit your company because you’ll only pay them when they make a sale. Commissions can also benefit your worker because their pay is tied directly to their accomplishments, so they’ll be motivated to exceed their goals.
Typically, you can choose to supplement an employee’s salary with commission or pay them commission in lieu of a salary. If a commissioned team member does not make at least minimum wage, you may need to include an hourly rate. You may also have to pay the individual overtime if they were on the job more than 40 hours in a workweek.
You might pay some members of your team hourly and others by salary or commission. Workful makes paying your entire staff easy and allows you to include multiple pay types in a single payroll run.