“WHAT” and “HOW” to pay your employees is one of the most important decisions when hiring a new team member.
The “What” will often be defined by the availability of qualified employees and the experience needed by the business.
The “How” can however be trickier, but provides a significant area of opportunity.
This article focuses on structuring a compensation package for a Sales generating team member while minimizing the cash impact.
LUCRATIVE BUT BALANCED
It is important to provide your sales staff with a proper earnings structure that provides:
1) A lucrative outcome when performance is proven,
2) Security while external factors cause barriers to accomplishing the sought after performance; and
3) A balance in cash management.
One option available to you, under Alberta Employment Law, is an Incentive based Compensation package (IBCP). When done properly, this structure can provide significant opportunities for both sides. Here are some insights regarding this structure:
CASH MANAGEMENT – Give credit where credit is due
Incentive based pay structures are attractive in times when cash flow is tight, as they allows for aligning Revenue generation with the disbursements of compensation. The upfront and often “sunk” cost of paying a steady salary where performance is lacking is eliminated and therefore providing an opportunity to reduce the upfront need for cash.
MINIMUM WAGE – The Minimum requirements by law:
A team member solely paid by commission should receive at least the equivalent to the minimum wage as established by provincial employments standards, even if they are not selling.
The minimum wage can be calculated as the total commission earned in a period divided by the hours worked, the resulting “commission per hour” needs to be at least equal to the minimum wage requirement. (The minimum wage as specified by Alberta Labor standards.)
A pay period can be 1 to 30 days, but no longer. The Minimum Compensation Requirement (MCR) or minimum wage has to be paid within the pay period. Alberta is $446/week, or the equivalent thereof over 30 days.
More details on the MCR can be found here – https://work.alberta.ca/documents/incentive-based-pay-and-mce.pdf
ADVANCES – Employee security
To help the sales staff in times of reduced activity, the ability to take an advance can provide a sense of security for the employee. Advances can be very useful in that they can help maintain the minimum standard as required by law.
Advances can be paid on commissions not yet earned.
Advances can be used to satisfy the MCR.
Advances can be deducted against the commission once it is earned and becomes payable.
A negative advance balance, calculated as draws in excess of commissions earned, can be withheld from the employee to recover the excess, but the MCR or Minimum Wage requirement has to be maintained.
These advances do require cash resources, the size of the advance along with the deduction of statutory deductions (CPP & EI) should be considered in establishing how the advance is paid.
VACATION & HOLIDAY
General Vacation pay is required on the commission (Generally at a rate of 4% or 6%). Statutory holiday pay is NOT always required.
For each week, hours worked in excess of 8 a day, or hours worked in excess of 44 hours a week, must be calculated. The greater of these two amounts is considered overtime
Overtime is payable at 1.5 times the hourly rate. In industries where different overtime hours have been set by the Regulation, those hours will apply.
For further insight on incentive based on compensation feel free to post comments below. I will monitor and respond to all .
Please note that this article is solely based on the employment laws in place in the province of Alberta, Canada. Each case should be assessed on its own and this article is not meant to provide legal advice.
Further details can be found with Alberta employment standards here https://work.alberta.ca/employment-standards/999.html.
Did you know we provide HR & Payroll Services?
Contact us at
OR complete the form below and we will be in touch.
To develop business strategies for growth & sustainability,
Through leveraging resources and easing commitments.
Peter Teunissen, CPA (ca)
Founder & CEO
– Leverage Consulting Group –