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Factors to Consider when Determining Employee Compensation

Mark Fearon
Oct 31, 2007

With the year coming to close in the next few months, many companies will begin looking at employee compensation as well as distributing bonuses. Employee compensation can potentially be a sensitive subject because people are very passionate about their accomplishments and how they are rewarded.

Employee compensation is much more than the amount you pay your employee. Your compensation budget needs to incorporate all taxes, profit sharing contributions and any other cost associated with the employees’ payroll. Here are five tips to consider when figuring out how to compensate employees:

  1. Incentives and bonus plans need to be clearly defined and measured by performance of the individual, team or company.
  2. Understand all costs associated with a benefit plan before you offer it. Make sure you consider future costs – not just today’s cost.
  3. Make sure you include all payroll taxes. Not only the obvious Social Security and Medicare tax but also unemployment (federal and state) and worker’s compensation.
  4. Consider what type of pay structure best suits the position – a direct hourly, salary pay or a commission arrangement?
  5. Payroll budgeting is essential to your bottom line. When developing a budget you must make sure all direct and indirect expenses are included for the entire cost of the package.

Compensating employees is a delicate balance between meeting the employee’s expectations and the company’s financial goals. If you need assistance computing your employee compensation package or making sure you are comparable to your industry, call your Rea & Associates representative today.

This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 10/31/07.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

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