From Hourly to Salary

**ErinHattaway** · 01-04-2008 04:46 PM

I work for a successful startup in the western US. I was brought on about 9 months ago as the second employee,followed by a few others as the company expanded and got sure footing. After graduation I was given a very specific position within the company and moved from hourly to salary. It's brought up an interesting line of thought- Rich, one of the owners- is helping the team transition from an hourly, part-time mindset to a full-time salaried mindset. It's actually good to be able to have conversations with an employer about these issues (only in a startup, right?) but I wonder what issues you'd see arise from having a team (or anyone, really) transitioning in this way.

How are the two worlds different?

**rogercbryan** · 01-04-2008 04:58 PM

This is an interesting topic! I’m personally not a big fan of salaried employees. When you make an employee a salaried manager you at first think that you’ll get more work out of them and have a more controlled cost structure. The reality is often the opposite. Salaried employees in smaller organizations often have a tendency to take advantage of their position. This is done by taking personal time during working hours. This can be controlled, but it is still a reoccurring problem. Also, you actually have less cost control with a salaried employee. If your business hits a slow patch and you as the owner needs to cut staffing expenses it is much easier to cut hours then it is to lower a salaried persons pay.

I’d love to hear from everyone else.

**BusinessAdviser** · 01-04-2008 05:01 PM

The first issue, though quite obvious, is the difference in behavior that different compensation plans elicit.

For an hourly employee, the incentive is to do as little work as possible to keep your job, and to spend as much time doing this minimum work as possible.

For a salary employee, the incentive is to do as little work as possible to keep your job, and to spend as little time doing any work as possible.

See, the incentives are not aligned with the goals. The employer's challenge is to find ways to create incentives that further the company's goals. Examples might include profit-sharing, bonuses, recognition, responsibility, etc.

However, it is important to note that studies have shown that money is not a very strong incentive, especially when compared to recognition, responsibility, perceived importance, etc.

Rich (one of the owners) should consider reading up on Organizational Behavior theory to find out how to align the compensation strategy and incentives with the company's goals.

**ErinHattaway** · 01-04-2008 05:54 PM

Rich actually does very well with just that idea: how do you help people buy in and get fulfillment, more than money, from what they're meant to be doing? First of all- I've written up more reports of what goes on around here on our blog- but he is very into goal/rewards systems. We set goals as a team and as individuals for what we would like to accomplish in what period of time. We even make visual reminders of what we want to accomplish and what we'll "get" in the end. I've never had a monetary reward. Instead, we do office activities like nice lunches and outings. We have personal rewards like a weekend with his Z3. He even gave into my request for a winter hot balloon ride when we meet some of our goals in January. This might seem silly to some of you, but it makes the office personal- and gives into our need for fun and indulgence at times.

Also- we have regular discussions (not lengthy board meetings) with regard to the company's goals- and even the company's expenses. This is truly a benefit that comes from a small team in a startup. Because we all know where we're heading- and we can feel the excitement, we want to get there. Further- we see the money. It's literally recorded on a whiteboard on the wall. We can see who owes us what, what we owe, and what's in the bank. In my nine months it's been exciting to see those numbers go up. I've got a literal view of where my paycheck comes from- and the value that they place on my work. Let me be clear: because I know that they value my input enough to make a space for me on that board, I feel obligated and entrusted to rise to performance levels.

I'm not sure this would work with everyone. I know people have a tendency to take advantage of systems like this- especially because we are on salary now. I do have to take time occasionally for personal outings- and as long as I am meeting goals and expectations it is not even looked at twice. Also- every once in awhile I'm expected to put in more time than usual. As long as both situations are looked at with maturity and respect, it works out.

**BusinessAdviser** · 01-04-2008 06:20 PM

Originally Posted by ErinHattaway

Rich actually does very well with just that idea: how do you help people buy in and get fulfillment, more than money, from what they're meant to be doing? First of all- I've written up more reports of what goes on around here on our blog- but he is very into goal/rewards systems. We set goals as a team and as individuals for what we would like to accomplish in what period of time. We even make visual reminders of what we want to accomplish and what we'll "get" in the end. I've never had a monetary reward. Instead, we do office activities like nice lunches and outings. We have personal rewards like a weekend with his Z3. He even gave into my request for a winter hot balloon ride when we meet some of our goals in January. This might seem silly to some of you, but it makes the office personal- and gives into our need for fun and indulgence at times.

Also- we have regular discussions (not lengthy board meetings) with regard to the company's goals- and even the company's expenses. This is truly a benefit that comes from a small team in a startup. Because we all know where we're heading- and we can feel the excitement, we want to get there. Further- we see the money. It's literally recorded on a whiteboard on the wall. We can see who owes us what, what we owe, and what's in the bank. In my nine months it's been exciting to see those numbers go up. I've got a literal view of where my paycheck comes from- and the value that they place on my work. Let me be clear: because I know that they value my input enough to make a space for me on that board, I feel obligated and entrusted to rise to performance levels.

I'm not sure this would work with everyone. I know people have a tendency to take advantage of systems like this- especially because we are on salary now. I do have to take time occasionally for personal outings- and as long as I am meeting goals and expectations it is not even looked at twice. Also- every once in awhile I'm expected to put in more time than usual. As long as both situations are looked at with maturity and respect, it works out.

Sounds like Rich has a great handle on how to motivate employees. Kudos to him for that.

**njbusiness** · 01-19-2008 12:28 PM

Sounds intersteing. I wish you the best of luck

**drivera1210** · 02-07-2008 03:12 PM

I think it also depends on the type of work you do as well. As a salary manager I am on call 24/7. While I do have my regular work hours. I'm on call beyond that as well. I have had to come in and work some odd shifts when others either called in sick or had a family emergency.

**phppoddotcom** · 02-27-2008 11:25 AM

Although the salary and hourly positions differ. It is obvious that the employee would practice the job in a similar way. From employers point of view it depends on the kind of business they do to hire a person for salary or hourly positions.

**John5544** · 03-04-2008 12:20 PM

salary, hourly...a hard-working person will work hard, no matter what pay structure they follow.

**chrcam1** · 03-21-2008 11:26 AM

I also need this type of scope pl inform me.

**shaggy** · 03-22-2008 02:45 PM

Being this is an entrepreneur forum, you should quit the 9-5 scene and find a way to move from your newly acquired salary wage to an hourly cash cow ROFL

**latinolive** · 03-22-2008 04:06 PM

I use independent contractors because as a small business owner I do not have the cash flow for salaried employees. I also don't want the responsibility of payroll taxes, workers compensation, etc. that comes with the territory. With independent contractors, they are much more motivated, at least I have found, than salaried employees.

Carlos

**MJBwebpro** · 03-22-2008 08:54 PM

I wish you the best of luck. sounds interesting

**rachael24** · 03-24-2008 10:48 AM

I also wish ya the best...Keep us posted

**JLeezer** · 03-24-2008 02:12 PM

Originally Posted by latinolive

I use independent contractors because as a small business owner I do not have the cash flow for salaried employees. I also don't want the responsibility of payroll taxes, workers compensation, etc. that comes with the territory. With independent contractors, they are much more motivated, at least I have found, than salaried employees.

Carlos

Carlos,

I'm curious as to whether you are appropriately calling the people who do work for you independent contractors. You saw you use them over salaried employees because you do not want the responsibility of payroll taxes and workers compensation. However, if these people are treated as employees, you are still responsible for them, whether they are paid an hourly wage or a salary. As the IRS indicates in the tax code and numerous rulings, just because a business owner refers to a person as an independent contractor, that does not make them one.

You may be using independent contractors and not employees, but I just wanted to throw caution out to everyone to be very sure of this issue which can result in a very substantial liability.