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Understanding the types of wages your employees require and qualify for is essential for running a small business.
As a small business owner, you have the responsibility of paying your employees their appropriate salaries and wages. You must be aware of the types of wages each employee qualifies for, and what your rate is for each. Some types of wages available to your employees will depend on your industry, business, or preference, while some are mandatory wages. Read on to learn the important differences between the common types of wages.
Regular Types of Wages
Regular types of wages are fixed amounts the employee earns each pay period.
Salary
A salaried employee receives a fixed payment per year. To determine the employee’s wages each period, divide their annual salary by the number of pay periods in your payroll schedule.
Hourly
To determine an hourly employee’s wages, you must multiply their hourly rate by the number of hours they work per pay period. An hourly employee’s hours may fluctuate, so their paycheck amount may change every period.
Supplemental Types of Wages
Supplemental types of wages are additional, non-regular wages employees can receive. Some are mandatory, but some are dispersed at the discretion of the business owner.
Overtime
According to the Fair Labor Standards Act (FLSA), you must pay overtime wages to nonexempt employees who work more than 40 hours in one workweek. Overtime pay is 1.5 times the employee’s regular hourly wages.
Retroactive Pay
These types of wages are compensation owed from a previous pay period. If you miscalculate the employee’s regular wages, fail to pay overtime, or forget a rise, you can add the retroactive pay to the next paycheck. You are required to add retroactive pay because that compensation is owed to the employee.
Commissions
Commissions are types of wages which the employee earns when they make a sale or accomplish another set goal. Not every business requires this, but sales positions often incorporate commission pay. Commission pay must be combined with at least a regular pay of minimum wage.
Bonus Pay
You may choose to pay employees bonus wages, which are individual payments that act as a reward or a gift to show your appreciation of your employee.
Severance Pay
Severance pay can be offered to a terminated employee. Generally, an employee earns severance for a period that is proportional to their time spent at the business. You can decide to offer severance pay or not, but depending on your state laws or employee contracts, you may be required to provide severance wages.
Accrued Time Off
Accrued time off pay is when an employee has earned paid days off but has not used them. Some businesses will pay out the accumulated time as taxable wages at the end of the year, or if the employee leaves, rather than letting the days roll over or removing the accrued time.
Tip Wages
Tips are supplemental wages in addition to the regular wages paid to them. Employees must report tip earnings to you if they earn more than twenty dollars per month in tips, which they most likely will. Tip wages are common in the service industry.
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