Employee Compensation: Balance expectations with goals

Q. What’s the best way to determine employee compensation?
Monday, April 23, 2012

A. Employee compensation can be a sensitive subject. Many human resource-related concerns need to be addressed, but equally important is understanding the financial aspects of employee compensation. Employee compensation is much more than just the direct amount that you pay an employee. There are other costs that need to be incorporated in the overall payroll budget. Here are five areas to consider:

•Make sure all incentives and bonus plans are clearly documented to minimize any confusion. 

•Understand the costs of your benefit plan before you offer it. When assessing what benefits to add, consider not only today’s direct costs, but also long-term expenses. Adding and removing benefits can be very demoralizing to your staff. 

•You also need to calculate employer payroll taxes into your overall payroll budget. Employers incur expenses, such as Social Security and Medicare tax, unemployment insurance for both state and federal entities, and workers’ compensation insurance.

•What type of position will the individual hold? Does it best correlate with direct payment on an hourly or salaried basis or is commission a better arrangement?

•Payroll budgets need to include direct wage and salary payments, commissions, bonuses, incentives, payroll taxes and insurance, along with any other directly related costs the business incurs in the payroll function. 

Knowing upfront how much money can be allocated to the complete compensation package will help you in setting your commission, incentive, bonus and raise strategies.

Ana McGary is president of PeopleFirst Enterprises. Reach her at ana.mcgary@people1sthr.com.