Types of Wages That Small Businesses Need to Know
Types of Wages That Small Businesses Need to Know

Types of Wages That Small Businesses Need to Know

If you’re running a small business, you’ve got a lot on your plate. Right at the top of your list of priorities will be paying employees, and you don’t have time to be confused by all the different terms for kinds of wages and salaries. If you’re just starting out in business, we’ve got you covered. Here’s a breakdown of the types of employee payments that small businesses need to know.

Regular Wages

Most employees receive wages as part of a regular salary or based on hourly work. Businesses will have to choose the frequency of pay periods to find what works for them while abiding by any state regulations.

  • Salary Wages
    Employees who receive a salary are guaranteed a fixed sum every pay period. The pay per hour worked must meet the relevant minimum wage for wherever the employee is working.
  • Hourly Wages
    If an employee receives hourly wages rather than salary, their pay is dependent on how many hours they have worked during that pay period. If employees work varying shifts, they can expect their pay to change from month to month.

Overtime Pay

If hourly employees work more than 40 hours per week, any additional hours must be paid at an overtime rate of time-and-a-half (1.5x their usual hourly rate), according to the Fair Labor Standards Act (FLSA). Salaried workers are typically exempt from overtime pay, but there are important exceptions. Depending on an employee’s role, there are different levels at which they become exempt. As of 2020, “white collar” exemptions apply on salaries of at least $684 per week. For “highly compensated employees”, exemptions begin at $107,432 per year.

To stay compliant, it’s essential that businesses understand both who is non-exempt and what counts as an employee’s regular rate of pay.

Here’s our guide on how to calculate overtime pay.

Tipped Pay

Many employees in the service industry will rely on tips for a large part of their income. While these are not paid by employers, minimum wage laws mean that employers must compensate for when tips aren’t sufficient. How much employers are required to pay in addition to tips varies by state, as does the definition of a tipped employee. Things can get even more complicated when it comes to calculating overtime for tipped employees.

Bonus Pay

In addition to regular salaries, businesses may reward high performing employees with bonus payments. These may be based on specific performance goals or overall company success, and are often offered at specific times of the year, especially the holiday season.

Commissions

For many jobs, particularly in sales, a system of commissions both incentivizes and rewards employees. For any given sale they will earn specified percentage for themselves. Often commission-based pay is supplemented with a regular salary to ensure a minimum level of remuneration regardless of performance.

Accrued Time Off Pay

As employees spend time in a company, they accrue Paid Time Off (PTO), which they can use for vacation. However, if they don’t wish to use all the time off they have earned, this can often be converted into extra wages. This is often mandatory if an employee leaves the company.

Severance Pay

In addition to any unused accrued time off, when an employee is terminated they will often receive a severance payment, usually corresponding to the length of their tenure. This may be specified in an employee’s contract or be mandatory under state law.

Retroactive Pay

If you’re processing payroll manually, there are plenty things that can go wrong when calculating employee pay—you might fail to include a full commission, underpay overtime or simply make a calculation error. If an employees does not receive the full amount to which they are entitled in one pay period, they must be paid retroactively in the following pay period.

Note: this differs from ‘back pay’, which is the amount owed if an employer found guilty of a wage violation by the Department of Labor.

Paycor Can Help

The cost of payroll mistakes and compliance breaches mean that keeping track of all the ways you can pay employees is too important to be left to chance. And then there’s the challenge of crafting the perfect package of non-monetary benefits to keep your employees motivated and engaged. The good news is, Paycor offers an all-in-one HR solution that helps business leaders save time, stay compliant and transform the way they manage people.


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