Common Ways to Pay Your Employees and Other Resources

Paying your employees is not optional. How to pay them, however, is up to you. The sum an employee earns per year is usually determined by one of three common methods: commission, hourly wages and salary. Each one has its benefits and its drawbacks.

Commission
Commission is determined by goods sold or projects completed. This method generally only works with sales or product development. The employee earns either a set amount per item made or a set percentage of what he or she sells. There is no minimum wage when using a commission-based salary, because the wage is considered self-determined: The more the employee sells, the more he or she earns. Commission also can be given on top of a salary or an hourly wage.

For example, someone who makes certain crafts for a company may make 50 cents per craft item. Or, if a sales employee earns 20 percent commission and gets a customer to buy a $30 product, the employee would earn $6 of that $30. Some companies manage the percent commission by having employees buy company goods for 80 percent of the list price and then reselling those goods to the customer, earning 20 percent commission.

Some companies set minimum requirements for how much must be sold a month, and the employee must buy the remaining widgets if he or she does not sell enough.

In commission-only settings, you only pay your employees for work completed. Some workers dislike this paymetn method because it can take a long time to ramp up.

Hourly Wages
Hourly wages are determined by time worked. According to law, those who work more than a certain number of hours a week (overtime) must be paid 1.5 times the usual pay (with exceptions in some types of businesses and jobs). This is the most common form of wage in the United States, and therefore is the form of wage that most employees are most comfortable and familiar with.

For example, if an employee works 50 hours in one week and is paid $6 per hour, he or she earns 40 × $6 + 10 × (1.5 × $6), totaling $330 for that week.

Salary
Salary is considered a lump sum amount paid per year. The employee's salary is divided throughout the year in equal, periodic increments. Often bonuses and overtime are considered when determining the annual salary. For example, an employee may be paid $60,000 a year, without any further remuneration for overtime or other usual bonuses, since the salary presumably includes such considerations.