Different Types of Pay Structure - List of Benefits and Best Practices
Finding the best way to pay your employees allows organizations to attract talent, retain employees, and achieve company objectives. This is why companies rely on HR specialists or compensation consulting services to help them select, adapt, and implement a pay structure that suits their needs.
Learn more about the different types of pay structures, what they are used for, and how to implement them!
What Are the Different Types of Pay Structures
There are various types of pay structures. Here are five common pay structures and their benefits to help you identify which one is ideal for your organization.
Hourly Pay
Hourly pay structures pay employees based on the number of hours worked. This is common for jobs that are not salaried, like in retail and fast food.
The benefit of this pay structure lies in its flexibility. Employees control their earnings. One can work as much or as little, depending on how much one wishes to earn.
Fixed Salary
For a fixed salary pay structure, employees are paid a set salary, regardless of the number of hours worked. This is common for salaried positions such as managers and professionals.
The benefit of salary pay lies in the sense of stability and predictability it provides. When people know how much pay they will receive monthly, there's less anxiety surrounding how much one should work to earn.
Commission
In commission-based pay structures, employees are paid a percentage of the sales they make. This is common for sales positions where employees have targets to meet.
Commission-based pay usually comes with base pay. The base pay is similar to a salary and provides a sense of security for employees for the months, when commissions are low. Meanwhile, commission pay can incentivize employees to work harder and meet their targets, which is beneficial to an organization.
Piece Rate
A piece-rate pay structure pays employees based on the number of units of work they complete. This is common in manufacturing and assembly line jobs, where employees are assigned a fixed amount of output and are paid accordingly.
Like commission pay, piece rate pay can provide employees with an incentive to increase productivity.
Gain Sharing
In gain-sharing pay structures, employees are paid a bonus based on the overall performance of the organization.
Gain sharing pay can provide employees with a sense of ownership and alignment with the goals of the organization. Moreover, gain-sharing incentivizes employees to work harder to earn more.
Profit Sharing
For profit-sharing pay structures, employees are given a share of the profits of the organization.
Like gain-sharing, profit-sharing pay can provide employees with a sense of ownership and alignment with the goals of the organization. Moreover, companies that have limited financial liquidity can benefit from profit-sharing pay structures as they can attract top talent without offering as high a salary.
Best Practices in Implementing Pay Structures
Before deciding on a pay structure, conduct a market analysis or contact a reputable salary consulting service. This gives you a better understanding of the local job market and competitive pay rates for similar positions, and allows you to set fair and competitive compensation with a similar pay structure.
Additionally, you must also inform employees of the pay structure, how it works, and what is needed to be eligible for a pay increase. Not only is this important in setting expectations, it also helps prevent misunderstandings which can lead to disputes later on.
Be sure to apply your chosen pay structure consistently to all employees in the same position to ensure fairness and prevent discrimination. Consider the company's priorities, financial capability, and future goals when selecting a pay structure.
To ensure accuracy, keep detailed records of pay rates, hours worked, output delivered, and other important information for each employee to help you calculate pay, ensure legal compliance, and serve as documentation during disputes.
Moreover, when you recognize and reward top performers to incentivize good performance, pay employees what they are due. This may be in the form of hours worked, amount of work delivered, or targets achieved. Set realistic and achievable goals for employees to achieve in order to earn a commission or piece-rate pay.
Select and Implement The Best Pay Structure For Your Organization
Select the best pay structure for your organization and implement it following the best practices listed above with the help of reliable compensation consulting services!
At FutureSense, we help companies find strategies to help achieve their business objectives. Whether you need help with your pay structure, another area of compensation, or Human Resources as a whole, FutureSense has got you covered!
Reach out to FutureSense today for a free quote!
