Compensating Employees
If your small business is growing to the point where it needs additional leadership, or your startup business needs a little help, you may be considering a search for more employees. However, before you begin recruitment, you should have a solid understanding of what kind of compensation you will be offering your candidates. If you’ve never been your own boss, you may find it difficult to be sure you’re offering enough—without promising too much. To help, here’s some advice on how to properly compensate new additions to your small business.
What Is the FLSA?
The Fair Labor Standards Act (FLSA) was instituted to set legal standards and absolutes for hourly and overtime wages, for employees under 16 years of age, and for recordkeeping for both part- and full-time employees of private companies and government offices. If you’re considering hiring employees for your small business, it’s important to be familiar with their rights—and yours—as dictated by the FLSA. It’s easy to get overwhelmed, so let’s start with the basics.
Hourly or Salary?
You can determine whether or not your employees will be hourly or salary by determining if the job they will perform will be exempt from the rules set by the FLSA.
- Exempt Employees.* Employees exempt from FLSA law must be salaried at no less than $455 per week. The following categories of employees are qualified for exemption according to the FLSA exemption worksheet:
- Administrative Employees. Employees performing non-manual labor directly related to management or general business functions.
- Professional Employees. Employees performing work that requires advanced, specialized knowledge.
- Executive Employees. Employees primarily managing the business or a department within the business, with the ability to hire and terminate other employees.
- Outside Sales Employees. Sales employees who regularly operate away from the office. The FLSA further defines what sales qualify for this exemption.
- Computer Employees. The FLSA has specific guidelines for which computer-related duties qualify employees for exemption.
More details about these exemptions are available from the U.S. Department of Labor in a concise factsheet available for download.
* Source: http://www.dol.gov/esa/whd/regs/compliance/fairpay/fs17a_overview.pdf
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Non-Exempt Employees. Non-exempt employees in the private or government sector, either part-time or full-time, must earn a base pay of no less than $6.55 per hour effective July 24, 2008. By July 24, 2009, the minimum wage will be raised to $7.25 per hour.* The FLSA also outlines the rules for overtime pay, stating that these same employees must be compensated 1 ½ times their base pay rate for hours worked over 40 per week.
* Source: http://www.dol.gov/esa/whd/regs/compliance/hrg.htm#2
Once you determine if your employees will be salary or hourly, remember to consider other factors when deciding their compensation. Your payroll budget, the applicable taxes and withholdings such as Social Security and worker’s compensation, and unemployment insurance could all factor into that final number. Also, remember that pay raises or bonuses can be used as motivators for better performance, so you may wish to establish clear guidelines to help regulate these amounts based on the quality of the job done.
Our Small Business section offers many areas of advice to help you manage your enterprise. If you’d like more advice on how to manage your payroll, we recommend reviewing our information Employee Benefits to discover ways of creating complete compensation packages.
