Paying Your Employees
When starting a new business, it is important to lay the foundations right, such as having a training system or providing opportunities for promotion and especially on how to build your employee pay structure. As a new business owner, you have the freedom to make the decision on how the payment should be made, how much, and when. Other than paying your employees, you also have to make sure you are being paid. An easy and structured way to implement this system is through the use of a payroll system for your company. You can also edit a paycheck stub template that will clearly lay out how your employees’ salaries are calculated.
There are several important decisions that you need to make, which would help and guide you to find a structure for your business.
Firstly, you have to decide on the type of employees that you wish to employ, which would then guide your payment process and determine the payment methods for your employee. In general, there are two main types of employees: contract-based or full-time employees.
Wages are the pay of your employees which are calculated based on the type of employee. This is usually given based on each week or each month, depending on what schedule your company decides on. This is called your period pay. Depending on the laws of your country, it is important to note if there are any minimum wages, overtime pay as well as any child labor standards to keep in mind.
Commissions are payment that is dependent on the work done by the employee. These are usually additions to the basic pay or the salary. It can be based on a fixed percentage of the salary based on a fixed goal of sales or orders. This can be set by your company, which sets the number of sales for each increment of commissions.
Bonuses are additional payments on top of any basic salary and commissions which are distributed according to the company’s discretion. They can be based on effort or performance which can raise the productivity of your employees or can be allocated to be a fixed bonus after the completion of a certain amount of work.
As an employer, you can provide your employees with insurance like for healthcare, which can help your employees with their everyday living expenses. There are two main ways to contribute to their insurance, which is through a tax stipend or having a tax reimbursement system.
Firstly, to help employees with their health insurance, you can just give them a certain amount of money, whether or not they purchase insurance, and these are added to their salaries. At the end of each year, the employees need to report the amount they have received which they should put under their income.
Secondly, tax reimbursement requires employers to give a fixed amount to the employees who use this money to pay for their health insurance and medical bills. However, this payment requires the employee to reach a threshold of payment for their health expenses before they can receive this payout.
Lastly, in the event of any work injury, the company should set aside some funds for work injury compensation, where the employer should pay for the medical bills of the employee who has sustained an injury during work. In these cases, the employers should not take away the employee’s compensation insurance from their pay.
Setting Salary Rates
Making a decision on how much the wage rate could be daunting as you have to take into account the different types of work done, as well as manage the costs of hiring employees. In order to tackle this in an easy way, the employers first have to decide the different types of employees and their different job scopes, and then decide the pay rates. To have a better idea of how much to pay for each role, you can do some simple market research on job recruitment sites to make sure you are not overpaying or underpaying your workers.
It is important to sit down and write the job scopes of each position and stick to them throughout your business or update them regularly. During interviews with potential candidates for your positions, make sure they understand and are clear of their job scopes before they accept the job to prevent any misunderstanding and miscommunication when they actually get the job. You can also ask for the candidate’s last pay which can give an even better idea of how much to pay the employee.
Creating a Payroll
There are several steps to follow in order to create a structured system for your employees’ pay. You can use these guidelines to give you an idea on how you should go about doing it:
- Apply for an Employee Identification Number according to your country’s legislation and manpower laws.
- Decide on your salary periods and declare your tax payments with the relevant agencies
- Put in place a system for your workers’ benefits such as overtime, sick leave, and vacation leaves
- Make a decision for an internal payroll process or even better, use a third-party human resource company for payroll systems
- If you are unsure of the specific documents and deadlines to follow, always arrange a meeting with the relevant government agencies who can better assist you with the processes to follow and documents to submit.
There are a few ways you can pay yourself a salary:
- Taking a salary in which the benefits and taxes are deducted from your pay. This is often more suited for companies which multiple stakeholders and owners.
- Taking a draw, which means that the business employer can take a portion out of the company’s money for personal spending. These are often used by sole proprietors or partnerships, in which the owners are not liable for any debts.
In conclusion, there are many more things to consider when setting up a payment system for your company. However, it is important to get it right as it can influence the foundation and culture of your company as well as the employees’ attitudes to the job.