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As an employer:

How do you decide how to pay your employees?

It’s always fascinating for me to hear the cases for salary vs. hourly pay, but having experience in both… I feel a very strong preference for one over the other.

I think this decision is a combination of job type and personality type of the worker.

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What type of job are you hiring for?

As I’ll get into below, there are certain jobs I think can only really work for hourly pay.

Retail jobs that require someone to be there for store hours is a perfect example: people need to be manning the store for it to be operating. You’re not going to pay them a salary when it’s way easier to just track their clock in / clock out hours.

This example is also referring to the common retail job that doesn’t require much serious expertise, other than basic people skills and working a cash register.

However, as we’ll get into below, jobs that are more specialized tend to shift more toward the salary side.

This also makes sense, because higher-up and more demanding gigs can’t have their hours predicted as readily.

These factors, plus the person you’re hiring, are crucial to understand in making the payment type decision.

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Is the employee more project or time-oriented?

There are definitely exceptions to when the employee’s “best work ethic” situation is trumped by the demands of a job.

The retail job example works again here.

It doesn’t matter if the person gets work done more efficiently if they’re project-oriented. Because no matter what projects you give them, there still needs to be someone at the store during operating hours, so naturally hourly pay fits.

But in cases of task –> employee doing work –> completion + company benefit, it’s wise to consider how the individual works best.

Are they more project or time-oriented?

Meaning, are they more driven to complete a project when they feel “on the clock,” or do they veer toward goal completion as their main driver?

This is important, as expanded on below, for these 2 reasons:

  1. Employees who are time-oriented will prefer hourly pay and be honorable about the hours they track as work
  2. Employees who are project-oriented are fine working as long (or as little) as they need to for a guaranteed amount of money upon completing the project

The quicker you can figure out your hire’s type between the two, the more money your company will save and be able to budget with.

Let’s get into each of these in greater detail. 

The Case for Hourly Pay

This isn’t going to sound good any way I word it, so here it is: hourly pay is definitely the way to go for mundane jobs.

Situations like administration, low-expertise skill sets, and jobs that “just need to be done” but don’t really require much creative thought or intensive thinking.

I’ve worked these jobs, and I do believe hourly pay is best for them.

Case in point: the front desk at a gym.  Sure, there’s not much to do there.  But the gym can only serve its clients when it’s open, and there needs to be someone in the room for safety reasons.

Having an employee that’s required to be there for a certain number of hours, then, only makes sense. The company knows how many hours it needs this person and the value they provide as a safety net for liability reasons.

However, it’s still much cheaper for the gym to hire someone knowing that they don’t need to do much, and therefore doesn’t need to be paid much.

There are plenty of students willing to snag up a position like this that guarantees they’ll have some sort of income, while possibly studying or doing other various productive things during the slow times.

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When hourly pay can shoot you in the foot

There comes a time when the expertise of the position required can easily flip the switch on the benefits of hourly pay.

If an employee who is partaking in a highly specialized position, I do not believe hourly pay is a good option… most of the time.

Don’t get me wrong – it makes sense from a budgeting standpoint why companies would want to veer toward hourly pay.  Determine a rate and the number of hours they believe a project will take, and find someone who might be interested.

But in my experience, once a job becomes more skill-oriented and demanding, there needs to be wiggle room on the end of the company if they insist on paying the person on an hourly basis.

This is because if someone takes a job in which the company simply tells them “you need to do X difficult thing for Y number of hours per week,” that automatically makes the employee feel like they should fill those hours, whether they’re actually doing that job or not.

You could actually be wasting a lot of money on that person if they take a job that you’re paying them 10 hours / week for $20 / hour to do, when it really only takes them 5 hours to do it.  They’ll find a way to make the project take longer so they can get what they believe is the “full value” of the work they’re putting in.

If you allow the person to negotiate their rate, though, you can easily avoid that temptation.  Allow the employee to pitch you about what they believe their specialized service is worth on an hourly basis, and how quickly they can get that thing done at that rate.

This makes the employee feel valued as a worker and more willing to finish the project in a sane amount of time, rather than “running the clock” to reach the value they believe the project is really worth.

You might end up being pitched $40 / hour, with the employee determining the project will take a maximum of 5 hours.

And look at that: it’s the same amount of money you’d already planned for, being applied to the same project you need done.  Why should it matter how long it takes the employee if you valued that project at $200 worth of work?

Since the employee set their rate, they might even finish faster than predicted, ultimately saving you money. 

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The Case for Salary Pay

You’ve seen the hourly argument, so you can guess where I’m going with salary.

Salary pay should absolutely be used for those in higher-skill positions, or those that require extensive creativity or fluctuating time demands.

Personally, I find myself far more project-oriented than time-oriented.

So for me, I’m much more comfortable pitching a per-project fee (or monthly retainer fee) when presented with a new task, because then I know no time will be wasted on it.

If it takes me 20 hours, I’ll do it for 20 hours.  If it takes me 2, I’ll do it for 2.  But if the company was willing to pay me for the completion of that project, again I ask, why does it matter how long it took me if I got it done on time and done well?

Giving the option of a salary to employees, and even contractors, gives them the freedom to work the hours they perform best in and hold themselves accountable to the deadline you present, and nothing else.

Again, offering them the flexibility to remind you what their service is worth will make them more willing to be efficient and return the project before or on the due date, and you don’t need to worry about fluffed-up hourly invoices.

If you don’t think you can afford the salary / project fee / monthly retainer of the person, look elsewhere. But remember that people in skill-based positions aren’t supposed to be cheap, so if they are… beware.

When Salary Pay Can Go Wrong

Usually, if I see salary pay go sour, it’s detrimental to the employee.

I’ve seen people take “part-time, salaried” assistant gigs for $500/week only to be worked 60+ hours a week without bonus.

But from a company’s perspective, I can see salary going wrong when a person who needs harder deadlines and time-sensitive projects is put on salary.

They might not feel the pressure of budget on their tail as much because they know the company is paying them whether they do the bare minimum or give maximal effort, so they veer to the easy side.

This could result in project timelines that are stretched as far as they’re allowed and unenthusiastic efforts from the employee.

It could get difficult when the person is in one of those higher-up positions and the company wants to see more from them.

So, possibly decreasing salary a bit and incorporating some time-sensitive monetary bonuses would make a quite nice blend of what a skill-oriented person should be earning while still pushing them to reach their deadlines with full effort. 

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Hourly vs. Salary Pay Comes Down to the Position & Employee

Just to reiterate, once you break out of those mundane hourly jobs, truly consider the work you’re asking of someone.

Allow them to negotiate higher pay rates if you determine that’s the route you’ll take.

This will keep workers from tracking unproductive hours because they feel fully valued for what their work is worth, and they set the rate that drives them to be timely in their efforts.

Good ol’ consciences work wonders when employees ask for a lot of money – they want to deliver when they know they’re being paid more.  And they’ll likely take way less time to do it than you’d allocated for at a lower hourly rate.

When you’re hiring at a salaried or project-based rate, make sure you are paying the person what the value of the project is.

Try to figure out if the employee really is project-oreinted instead of time-oriented.  And if they begin to slack, try the combination approach of base salary + time-sensitive bonuses for exceptional work.

And above all of this, make sure you’re paying your people well.

Whether it’s hourly or salary, employee satisfaction is tied heavily with performance outcome.  And feeling highly valued is a very important part of employee satisfaction.

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