06/ 21/ 2006
by Misti Wolanski
Unless you are a volunteer organization, you know you have to pay your employees. How to pay them, however, can sometimes be up to you. The wage earned per year can basically be determined by one of three common methods: commission, hourly and salary. (Salary can refer to either the wage per year or the method of wage payment of giving a set amount per year.) Each one has its benefits and its drawbacks.
Commission
Commission is determined by goods sold or completed. This method generally only works with sales or product creation. 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, for the wage is considered self-determined: The more the employee sells, the more he or she earns. This 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.
Sometimes a company has minimum requirements for how much must be sold a month, and the employee must buy that much of the company goods each month he or she does not sell enough. You only pay your employees for work completed. However, it is limited, and cannot apply to all jobs. Also, many employees dislike this method because it can take a long time before it can provide a full-time income.
Hourly
Hourly wage is determined by time worked, and working 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.
Federal minimum wage is $5.15 an hour with a few exceptions; check with your state's laws, since the state minimum wage law applies if it is higher than the federal, and some states have some further regulations. Vacation, sick leave, holiday and severance pay are not federally required, though your state may demand otherwise. Employees prefer such pay bonuses, as well.
Salary
Salary is theoretically one set amount paid per year; the employee's salary is divided throughout the year, and take-home pay is generally the same each pay period. Often bonuses and overtime are considered when determining the annual salary. For example, an employee doing customs paperwork may be paid $60,000 a year, without any further remuneration for overtime or other usual bonuses, since the salary presumably includes such considerations.
Though popular among some employers, it is less so among employees. Many employees find themselves working more than 40 hours per week, though some may work less.
Visit the U.S. Department of Labor's Web site for more information.
