Employee payroll and compensation are complex, so here we share some of the most common compensation questions and answers our experts get and give.
Note: This story was last updated January 31, 2023
Our human resources professionals get a lot of payroll and compensation questions. Why? Because they’re both complex and crucial aspects of an employer’s relationship with their people. You don’t want to get it wrong, especially in a tight labor market. In fact, according to Pew Research Center, 63% of employees who quit their jobs in 2021 cite low pay as a reason.¹
Don’t lose top talent due to offering a low-value compensation package and not providing the additional benefits most employees seek. To help run your business smoothly and foster good employer-employee relationships, consider our HR advisors’ answers to these most common compensation questions they receive.
What standard do employers use to set compensation?
Most employers will, or should, conduct a compensation analysis to help determine the market value of their current or developing compensation package. They look at the external market to see what competitors are offering, then assess how they can be similar or better in their offerings. Primary factors considered include candidate experience, skillset, current job market, job descriptions, and internal formulas.
How often should you pay your employees?
Employee payment schedules are not regulated at the federal level. However, each state has its own law. It’s very important to understand your state’s regulations. States have specific rules based on the timing of payments. For example, in some states, under certain circumstances, employers must disburse payment to employees within 5 business days of the pay period’s end. Check with your state to find out what your employer requirements are.
How frequently should current salary be reviewed?
The pay structure should be reviewed, at a minimum, every year. Some companies conduct reviews more frequently. Whatever timeline you choose, during your salary review, check whether your employees’ current pay aligns with market rates. Has anyone earned a pay increase? Is your current structure enough to motivate employees along their long-term career journey? When employees don’t receive periodic pay increases, employers risk losing top performers to competitors who better compensate for similar roles.
What happens if employees are not paid on time?
If this happens, chances are you’ll have a few disgruntled employees. People count on receiving paychecks and incentive compensation in a timely manner. Employers can also face fines or penalties if an employee reports them to the state Department of Labor. It’s important to pay correctly and on time to avoid negative repercussions.
How do benefits packages figure into compensation determinations?
One of the top interview questions job applicants want answered by a hiring manager relates to benefits. Typically, the compensation outlined in a job offer includes base pay. But companies who want to align with salary expectations of new job applicants will want to consider integrating additional benefits. For example:
- Health benefits.
- 401(k) or other retirement savings plan.
- Stock options, bonuses, and other forms of variable compensation.
- Paid time off, flexible hours, and remote-work options.
- Overtime pay opportunities.
- Other forms of compensation of value to employees.
Employers also factor in “wiggle room” to account for salary negotiations during the job interview, but this can be a delicate balance when keeping internal equity in mind.
How do performance ratings factor into employee raises?
Salary increases are something many employees think about. Unfortunately, employers aren’t always as thoughtful about the topic. Those who want to see the best productivity will recognize performance ratings and directly link them to employee raises. It’s a good incentive plan to motivate employees. Hard-working employees who work efficiently and well are rewarded for their efforts and performance. This is quite different from showering the entire workforce with blanket raises for underperforming, overperforming, or maintaining status quo.
What should be done if pay isn’t equitable to the market?
You should look to align yourself with the salary range of other organizations in your industry or location. If you cannot exactly match the market rates, look to offer incentive plans that are valuable to employees. Or try to integrate other benefits they’d like to experience in their work environment. These things raise the value of a total compensation package.
How are payroll mistakes remedied?
While you try to avoid them, common payroll mistakes can still occur. If it happens, immediately take steps to correct errors. Be transparent. Let employees know something is wrong and tell them you’re putting in a correction ASAP.
What happens when you have multiple pay rates within the same pay period?
This is among our most common payroll questions. Total the number of hours worked and add up the rates of pay for a regular rate of pay. Use this average when calculating overtime pay. It’s also important not to go below the minimum wage for state or local requirements.
What happens when someone leaves the organization and you divide up their responsibilities among other people?
This situation is quite common and happens more often than you might think. A solution typically takes a lot of thought. Start by looking at the newly responsible individual’s compensation, additional duties, and the decisions they will need to make. Apply your compensation analysis mindset to this employee’s new situation.
When splitting up the job for multiple staff members, you may need to start from scratch. Sometimes the roles and responsibilities are very different in terms of value and importance to the organization. Employers may want to consider compensating the different roles accordingly.
What happens if the pay schedule needs to be changed?
This is something that’s best to avoid, but sometimes it’s inescapable. It’s an intense process, but sometimes companies need to switch from, for example, weekly pay schedules to biweekly. If you must change your pay schedule, make sure you factor in deductions, taxes, and benefits.
In addition, be sure to adhere to all rules around payments. Keep in mind, this may involve an advance in salary. Also, be sure to directly and clearly communicate any changes in the pay schedule to employees.
Good employers are meticulous about compensation
Compensation is an important factor in employee recruitment, retention, and satisfaction. Compensation conversations should begin with or prior to the job interview phase. The transparency will demonstrate your willingness to compensate employees fairly in a competitive market. And taking steps to modify your salary structure as needed goes a long way toward becoming a desirable employer.
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