How To Put Together a Compensation Plan

How To Put Together a Compensation Plan

A compensation plan is designed to attract and retain employees. Build your compensation plan to ensure pay equity while balancing the needs of your small business and delivering value to customers.

Pay competitively relative to companies similar to yours in size and industry in your region. Compensation can tie in directly to regional compensation data, how employees are performing in their roles and where they are relative to the next level above them.

Set a philosophy on where you want your overall compensation to fall compared with the ranges in your market. By setting ranges, you assess your employees within a framework based on market data, so you can be transparent with them. Your criteria can mix technical skills with the soft skills you consider important across your organization, and that will aid in conversations about growth and how employees can get promoted to the next level. Workers are more likely to stay in a role where they anticipate salary growth and the development path to get there. This creates more predictability for the finance team.

Consider all the moving parts

A basic compensation package consists of salary or wages. A more comprehensive compensation package includes additional benefits: bonuses, perks, commission, health insurance and retirement plans. For employees, a sense of belonging imbues job satisfaction, engagement and effort. The right compensation strengthens self-direction, interconnectedness and success.

Compensation plans offer fair and competitive payments that align with the company budget and promote business success. Structure a competitive compensation program with direct and indirect components.

Direct compensation refers to the financial payments — salaries, bonuses and equity — in exchange for time worked or results obtained. Salary is the bedrock of your company’s compensation plan. When calculating wages, consider the following important factors:

  • Geography.
  • Job responsibilities.
  • Cost of living.
  • External market data.

When calculating bonuses used to reward team members for high performance, consider these three questions:

  • Who’s eligible for a bonus?
  • Which targets should they hit to earn a bonus?
  • What should the payment structure look like?

Equity compensation offers a stake or partial ownership in the company to encourage high performance. Team members get the message that when the company succeeds, everyone succeeds.

Look at the big picture

Holistic, people-driven strategies work to improve company culture by attracting and retaining talent. Competitive salaries help, but they are rarely enough anymore. Today’s indirect compensation elements include:

  • Medical insurance.
  • Dental and vision coverage.
  • Retirement benefits.
  • Wellness benefits like gym memberships.
  • Educational incentives.
  • Mental health services like therapy or counseling.
  • Volunteer opportunities.
  • Flexible spending accounts.
  • Hybrid working arrangements.
  • Paid time off.
  • Disability insurance.
  • Paid holidays.
  • Child care initiatives.
  • Relocation stipends or housing options.
  • Reimbursement for work-from-home costs.
  • Commuter benefits.

Compensation packages that adequately reward employees for their hard work can drive business profit. An effective compensation plan illustrates company integrity and transparency, assists in attracting and retaining top talent, boosts employee motivation and loyalty, and reduces turnover and hiring expenses.

Base your program on external market analysis and internal company data. Benchmark with similar organizations to create an appealing payment package.

Take the long view

By outlining your company’s underlying approach to compensation, you place the program in context, promoting alignment with your company’s objectives and values. A good compensation plan includes a pay-for-performance strategy, for example, that helps retain employees.

Explain the program to employees, communicating the components to demonstrate integrity and nurture trust. When your team understands your compensation philosophy, it can feel confident investing effort in the work.

A clear employment contract — aligned with state and federal laws — shows respect for employee-employer relations and helps prevent disagreements and legal misconduct. Pay is personal — it’s how employees measure their worth to their employers and fund and build their lives. When you get compensation right, it positively impacts your workers and lets them better focus on the work.

New Independent Contractor Rules: Do They Affect Your Employees?

New Independent Contractor Rules: Do They Affect Your Employees?

The Department of Labor’s final rule for employee or independent contractor classification under the Fair Labor Standards Act rescinds the 2021 Independent Contractor Rule, replacing it with guidance on analysis that’s more consistent with the FLSA as interpreted by longstanding judicial precedent, and was scheduled to take effect March 11, 2024.

The final rule reduces the risk of misclassification while providing greater consistency for businesses and gig workers, specifically:

  • The designation of control and opportunity for profit or loss are given greater weight.
  • Considering workers’ investments and initiative only as part of the opportunity for profit or loss.
  • Prohibiting consideration of whether work performed is central or important to your business.

A step toward greater clarification

The 2021 IC Rule narrowed the economic reality test: Is a worker economically dependent on the employer for work? This had a confusing and disruptive effect, departing from decades of case law and describing and applying the multifactor economic reality test as a totality-of-circumstances test.

Analysis of the final rule may be applied to workers in any industry and will be accessible in the Code of Federal Regulations. It doesn’t adopt an ABC test, permitting an independent contractor relationship only if all three factors in a three-factor test are satisfied. Instead, the multifactor economic reality test that courts use to determine whether a worker is an employee or an independent contractor is used, relying on the totality of the circumstances where no one factor is determinative.

The final rule revises only the DOL’s interpretation under the FLSA and has no effect on federal, state or local laws with different standards of classification. The IRS and National Labor Relations Act have different statutory language and judicial precedent governing the distinction between employees and independent contractors. The laws are interpreted and enforced by different federal agencies. The rule has no effect on state wage and hour laws that use the ABC test — California’s and New Jersey’s, for instance. The FLSA doesn’t preempt federal, state and local laws that apply.

In brief, according to new federal guidance, businesses should meet whichever standard provides workers with the greatest protection.

The key aspects

The final rule affirms that a worker is not an independent contractor if economically dependent on an employer for work, applying six factors:

  • Opportunity for profit or loss depending on managerial skill.
  • Investments by the worker and the potential employer.
  • Degree of permanence of the work relationship.
  • Nature and degree of control.
  • Extent of the work performed as integral to the potential employer’s business.
  • Skill and initiative.

Workers cannot voluntarily waive employee status, choosing to be classified as independent contractors. They cannot waive FLSA-protected rights like minimum wage or overtime pay. The Supreme Court has explained that waiving their FLSA rights would harm other employees, undermining the goal of eliminating unfair methods of competition in commerce.

Among the similarities to the 2021 rule: advice on definitions and on identifying economic dependence as the ultimate inquiry of the analysis, providing a nonexhaustive list of factors to assess economic dependence with no single factor being determinative. Both clarify that economic dependence doesn’t focus on the amount of income the worker earns or whether the worker has other sources of income.

Differences between the new rule and the 2021 rule:

  • Returns to a totality-of-the-circumstances economic reality test, where no single factor or group of factors is assigned any predetermined weight.
  • Provides additional analysis of the control factor, including how scheduling, supervising, price-setting and working for others are considered when analyzing the nature and degree of control over a worker.
  • Returns to the DOL’s consideration of whether the work is integral to the employer’s business rather than exclusively part of an integrated unit of production.
  • Omits a provision from the 2021 rule that minimized the relevance of an employer’s reserved but unexercised rights to control a worker.

Note that this is just a summary of a complex series of provisions. One thing certainly hasn’t changed between the new rules and the old: the need for companies to obtain qualified professional advice to make sure they are in compliance.

What Employees Need To Know About Income Tax Withholding

What Employees Need To Know About Income Tax Withholding

Workers who are considered employees do not have to pay their own taxes during the year. Instead, employers withhold income tax from their employees’ paychecks and pay it to the IRS on behalf of the employee.

Now, if not enough tax is withheld from each employee’s paycheck, then the employee might end up receiving an unexpected tax bill come tax season. They might even come face-to-face with penalties when filing their tax returns in the next year.

On the other hand, if employees end up overpaying taxes as a result of having too much tax withheld from their paychecks throughout the year, the employee may receive a tax refund. That’s never a bad thing, but adjusting the tax that is withheld upfront may mean your employee will receive bigger paychecks throughout the year rather than a lump sum come tax season.

Ultimately, the amount of tax that is withheld from employee paychecks is determined by what employees do when they enter the workforce or change jobs. It all starts with the way employees fill out their W-4 form, the Employee’s Withholding Certificate.

This information tells employers how much money they should withhold from an employee’s paychecks for federal income tax. The information that employees submit is out of the employer’s hands, but if your employee notices that something is off with the tax being withheld in their name, you can refer your employee to the information they submitted.

Get the forms right

If need be, employees can submit new W-4 forms when their personal or financial situation changes. That way, their current situation can be reflected in their withholding amounts.

Also, if your employees are not sure whether the right amount of tax is being withheld from their paychecks, the IRS offers a Tax Withholding Estimator tool on the official website. This tool can help people estimate their federal income tax withholding amounts while seeing how it may affect their refund, take-home pay or tax owed.

Keep in mind that all of this information applies only to workers whom you employ. If you pay contractors or freelancers to do work for you, remember that they are responsible for paying their own taxes directly to the IRS. You do not have to automatically withhold any of those taxes from their income because it is their responsibility, not yours.

That said, all taxpayers are encouraged to keep copies of their tax-related documents. Store them in a safe place to ensure that they can be easily found or remain readily available when it comes time for you to file an accurate return.

Do Machines Have Social Skills?

Do Machines Have Social Skills?

No need to worry right away, because as technology dictates workplace functions on new terms, we will still rely on the unique soft skills only humans can provide. Workers will continue to play an indispensable role in creating and cementing links among their teams, management, clients and outside constituents. AI cannot operate with empathy, kindness or compassion. Those are the hallmarks of a social animal.

What are interpersonal skills?

Almost every job requires interpersonal abilities to some extent, whether it is listening and attending to clients, getting along smoothly with colleagues, or inspiring and motivating from the managerial side. Almost everyone, except for lighthouse keepers, must be prepared to interact with their boss and fellow team members. Relationships may be predicated on empathy, relating to how others feel; it is also crucial to understand clients’ concerns to help solve them. Cooperation is a key aspect of forging partnerships directed toward common goals. In order to establish these connections, workers must develop their verbal and written communication, attentive listening, and important nonverbal skills. Body language, gestures and eye contact often express more than lengthy memos can.

Some of the most powerful social skills workers must possess in the workplace are:

  • Positive attitude.
  • Being a team player.
  • Ability to solve problems.
  • Facility to know how to control their tone and volume of voice.
  • Ability to choose their words carefully.
  • Active listening proficiency.
  • Capability of making decisions.
  • Ability to adapt and be flexible to change.
  • Conflict resolution ability.
  • Professionalism.
  • Reliability.
  • Good manners.
  • Supportiveness.
  • Respectfulness.

Consider the skill of being a good listener, for instance. Be careful not to respond until another person has finished speaking. Or, you can cultivate how to skillfully have small talk and instill rapport by paying the right amount of attention to your colleagues. You can also be respectful by encouraging others to express their opinions and not interrupting them.

These traits are sometimes grouped under emotional intelligence. Some of them can be measured by EQ tests that try to quantify characteristics such as self-awareness, social insight, confidence and self-control. How do employees respond to praise or criticism? In their work relationships, are they able to guide or motivate others; bond with, influence or persuade team members; or handle conflicts? These are some of the questions EQ tests can answer.

Importance of the softer side

As technology grows ever more sophisticated, offices are becoming more communal. The typical solitary cubicle is transforming into a more team-based arrangement. Although there is no formal way to measure how team members leverage one another’s contributions, good social skills clearly help integrate team members’ input. Their cohesion supports company culture, which results in less HR intervention. When teams are successfully coordinated, members are happier and more successful at problem-solving and achieving goals. It is no wonder that a Business Solver study showed 93% of employees are likely to stay with a more empathetic employer. A Leadership IQ study revealed that, among new hires, 89% of failures are due to a lack of soft skills and difficulties managing their emotions.

Building social competence

Managers can help employees hone their soft skills by:

  • Identifying problem areas.
  • Setting goals.
  • Encouraging role-playing.
  • Offering feedback.
  • Using positive reinforcement.
  • Assigning homework exercises.

Gamification is particularly useful for enhancing social development. It might take the form of simulation exercises designed to understand customer pain points and complaints or peer-to-peer learning within a group. Many companies turn to training modules to focus on the key moments in client/customer interactions. A typical  example is Walmart’s “Spark City.” The game simulates working in a Walmart store, including regular activities such as restocking, greeting customers, cleaning up spills or confronting shoplifters. Players earn points and receive feedback. Meanwhile, a corporate game at Farmers Insurance imitates collaboration with vendors and communication with customers. The training curriculum draws on virtual reality settings.

These games serve to determine the messages players hope to communicate about themselves and their solutions to daily challenges. Almost anyone can benefit, whether you’re an executive, a salesperson or any other team member.

How Do We Know When an Employee is Ready For a Leadership Role?

How Do We Know When an Employee is Ready For a Leadership Role?

How do we know when an employee is ready for a leadership role?

It’s good you’re thinking about this. Promotions into leadership too often come with little discussion about how the leadership role will be different from the current role or whether the employee has the interest or skill set to be an effective leader.

Fortunately, there are indicators that someone is likely ready for a leadership role. These include (among other traits) their ability to communicate effectively, inspire and motivate others, resolve conflicts while minimizing drama, adapt to change, and take accountability for the work of their team.

If there’s an employee you’d like to promote, but they haven’t expressed an interest in a leadership role, schedule a meeting with them to talk about the idea. Share why you feel they are ready for the role and what it means to be a leader within your organization. Ask about their career goals and how they would like to advance within the organization. Let the employee know how you can support them with these goals, whether or not they move into a leadership track.

If the employee is interested in leadership, provide them a clear picture of the responsibilities and the training and guidance they’ll receive as they move into the new role. Most employees who are new to leadership will need extra support as they transition into a position of greater responsibility.

This Q&A does not constitute legal advice and does not address state or local law.

Content courtesy of the HR Support Center –

Payroll Tax Rates and Contribution Limits for 2023

Payroll Tax Rates and Contribution Limits for 2023

Below are federal payroll tax rates and benefits contribution limits for 2023.

Social Security tax

In 2023, the Social Security tax rate is 6.2% for employers and employees, unchanged from 2022. The Social Security wage base is $160,200 for employers and employees, increasing from $147,000 in 2022. Self-employed people must pay 12.4% on the first $160,200.

Medicare tax

In 2023, the Medicare tax rate for employers and employees is 1.45% of all wages, unchanged from 2022. Self-employed people must pay 2.9% on all net earnings.

Additional Medicare tax

In 2023, the additional Medicare tax remains unchanged at 0.9%. This tax applies to wages and self-employment income over certain thresholds ($200,000 for single filers and $250,000 for joint filers).

401(k) limits

In 2023, the maximum contributions are as follows:

  • Employee (age 49 or younger) = $22,500, up from $20,500 in 2022.
  • Employee catch-up (age 50 or older) = $7,500, up from $6,500 in 2022.

Employees can contribute up to $15,500 in 2023, up from $14,000 in 2022, to a SIMPLE 401(k) plan.

HSA and HDHP limits

In 2023, the maximum contributions to a health savings account are as follows:

  • Employer and employee = $3,850 (self only), $7,750 (family).
  • Catch-up amount (age 55 or older) = $1,000.

In 2023, the limits for a high-deductible health plan are as follows:

  • Minimum deductibles = $1,500 (self only), $3,000 (family).
  • Maximum out-of-pocket amounts = $7,500 (self only), $15,000 (family).

FSA limits

In 2023, employees can contribute:

  • Up to $3,050, a slight increase from 2022.
  • Up to $5,000 to a dependent care FSA if filing single or jointly, and up to $2,500 if married but filing separately. These are unchanged from 2022.

QSEHRA limits

In 2022, employers with a qualified small employer health reimbursement arrangement can reimburse employees for health care expenses as follows:

  • $5,850 (self only), up slightly from 2022.
  • $11,800 (family), up slightly from 2022.

Commuter benefits limit

In 2023, employees can contribute up to $300 per month for qualified commuter benefits (e.g., mass transit and parking), up from $280 per month in 2022.

Adoption assistance exclusion limit

In 2023, up to $15,950 in employer-sponsored adoption assistance may be excluded from an employee’s gross wages, increasing from $14,890 in 2022.

Remember, these are all federal rates and limits. Be sure to check with the necessary agencies for state and local payroll rates. Also, various limits and additional rules may apply. Work with a financial professional for the details.