Set the right pay rates

Pay rate systems

When you select a pay rate system, you are choosing how you will reward your workers. The transparency of the system is the key to ensuring everyone knows how their pay is calculated and how any bonuses or enhancements are attained.

Types of pay rate systems
The two main types of pay system are:

• the basic rate system that pays workers a fixed amount on an hourly, weekly or monthly basis
• the variable or incentive scheme that pays workers, in part or entirely, based on individual or group performance, skills, results or profits

Basic rate systems are simple to operate but do not act as a performance incentive.

Incentive schemes link payment to individual performance, productivity or skills and can be more expensive. You could also choose a group incentive scheme based on team results. These can encourage team working and a sense of contribution. However, they could also result in unequal performances and in extra payments being seen as the norm. Lack of transparency in pay systems has been found to be unfair under equal opportunities law.

You can get detailed guidance on selecting a pay rate system at the Acas website.

Choosing a system
You will need to find the right system or combination of systems to suit your business. Always weigh up the pros and cons of each, for example:

• Linking pay to length of service can encourage commitment to the future of the business - but it might also lead to complacency among longer-serving workers and dissatisfaction among newer, better qualified ones. Unjustifiable seniority systems have been found to be unlawful as they can be indirectly discriminatory to women, who may have breaks in their career.
• Linking pay to qualifications could increase workers' flexibility and promote multi-tasking, but can also make workers more marketable.

You should also remember that factors other than pay can motivate workers, eg feedback, supervision, training and consultation, work-life balance, which sometimes lead to better retention rates.

Subjects covered in this guide

• Introduction
• Pay rate systems
• Setting up a new pay rate system
• Making pay comparisons
• Equal pay for work of equal value
• Reviewing pay rates and systems
• Commission, bonuses tips and gratuities

 Print This Page

Source - Business Link; Crown Copyright.