Should I Offer My Sales Staff Salary or Incentive-Based Pay?

Running a small business is no easy task. Not only do you need to offer a unique product or service, abide by all tax laws, and cover the cost of your overhead, but you must also ensure your employees are happy. To accomplish this, you need to know how to pay them properly. For most employees, this means offering them competitive hourly wages. Regarding sales staff, however, there are generally two types of compensation: salary and incentive, and determining which one is right for your business can be a tough choice.

Laws May Dictate Your Decision

Ideally, you want to offer a compensation package that offers employees incentives without breaking your budget, but there are guidelines that must be adhered to under the law. Depending on how you have classified your employees and how you set up your wage structure, these laws may dictate the type of compensation you can offer. Failure to take such laws into account could leave your business open to legal action for wage violations or the misclassification of employers. With this in mind, you should be sure to have a firm understanding of all applicable labor laws.

Salary vs. Incentive

Incentive pay—or the offering of bonuses or commission based upon sales goals—can encourage sales employees to do their best. It is also more flexible than salary pay and gives employees more control over the amount they earn. However, incentive pay does have some notable downfalls. For example, sales incentives that do not offer sufficient value to the employee (such as in situations in which employees may make only a few sales each week or month) could lead to frustration and burnout. Further, some employees may prefer knowing what they will make each pay period. In these situations, you may want to consider a salary pay scale.

Combining Salary with Bonus Incentives

While most employers assume they can only offer either salary or incentive pay, there may be advantages to offering a combination of both. For example, you could offer your sales employees a base salary with the ability to make additional bonuses for exceptional performance. However, you should be aware that there are some risks involved, particularly for companies still in their infancy. Failure to carefully consider if you can cover the cost of both salary and incentives may land you in some financial trouble.

Work With a Knowledgeable Team

At the Gierach Law Firm, we understand the challenges of small businesses because we are one. Dedicated to your company’s best interest, we will carefully evaluate your situation and offer tailored advice to suit your needs. Learn more about how we can assist your company. Call 630-756-1160 and schedule a consultation with one of our Naperville small business lawyers today.

Sources:

Chron Small Business

CBS Chicago