Setting the correct salary is never easy and is more an art than a science. In the current economic climate the market fluctuates according to industry, geographical location, budgetary constraints and a whole host of other market forces. To help keep you focused, here are 5 tips for setting salaries in France, the UK and the US:
Consider the costs
Remember that employee costs are not limited to basic (or base) salary alone. Look at the total package which will include benefits (such as pension and private medical contributions, meal allowances, car allowances, etc), subsidies, bonuses, equity participation (if applicable) and contributions to social security, namely National Insurance in the UK and Social Security and Medicare in the US.
Pick a pay scheme
Decide if your employees will be paid on a time or incentive basis (or a combination of the two).
Time based payment schemes mean that employees are paid a set rate per hour, week or month. These often refer to an annual salary, paid equally over the period of 12 months. These schemes are simple to operate and administer. The down-side can be that there is no correlation between pay and performance so employers need to watch the performance of their employees and monitor it, where appropriate.
Incentive based payment schemes, where employees are paid a commission or percentage of sales are more complicated to administer but encourage employees to work efficiently and more directly reward performance.
The combination of the two schemes is often applied in practice so employees are paid a basic salary with added incentives if pre-determined targets are met.
Track the competition
Compensation is market driven and, to remain competitive, you should always know what the competition is up to. This isn’t easy and will require some detective work to stay on top of the game.
Remember that employees will have expectations of increases in the future (usually on an annual basis) so budget and allow room for raises in subsequent years.
Obey the law
- Observe minimum wages: in France, the UK and the US, employees must not be paid less than the prescribed minimum wage. Minimum wages in the UK are published annually and the current national minimum wage in the UK is £6.31 for employees over the age of 21. In France, minimum wages are applicable to all employees, regardless of their profession or their age. Since December 21st, 2012, it amounts to €9.43 per hour and €1,430.22 per month for a full-time employee. Collective bargaining agreements in France and the UK (“CBA”) also set minimum salaries applicable to employees within their scope. Also ensure that you pay all premiums prescribed by applicable CBAs (including but not limited to holiday premiums, year-end premiums, etc.). Minimum wages in the US are set by both federal and state law. In 2013, the federal minimum hourly wage is $7.25, but may be higher in certain states (e.g., $8.25 in Connecticut). Union members may also be entitled to higher minimum rates under an applicable CBA.
- Issue pay slips: in the UK, you are legally required to give each employee a written itemised pay statement on or before pay day and this is also the case in France and in most US states.
- Don’t discriminate: France and the UK adopt a concept of equal pay which requires no less favourable contractual terms and conditions of employment for men and women in the same employment on like work (i.e., work of the same of broadly similar nature), work of equal value, or work rated as equivalent under a job evaluation scheme. The US also has laws that prohibit discrimination in pay on account of gender, race, religion and other factors, and in many cases individual states (and some cities and local jurisdictions) have further expanded these protections. It is important to understand the individual laws that will apply to each employee.
- Annual mandatory negotiations: in France, all companies which employ more than 50 employees and in which a union representative has been designated should yearly negotiate with unions concerning salaries for each professional category. An agreement on the topic is not required but the employer should negotiate in good faith. Unless a CBA (in the case of a unionized workforce) or individual contract requires otherwise, there are no such similar requirement in the US.
- Bonuses: in France, a discretionary bonus can be fixed if an employer is able to justify by objective and relevant reasons the difference between bonuses. As a consequence, the evaluation of employees must be documented to justify the difference of treatment. If the bonus is linked to targets, such targets can be fixed unilaterally by the employer as those targets are doable and known by the employee since the beginning of the evaluation period. Indeed, the bonus calculation formula should be defined in advance in order to enable employees to verify the good payment of the compensation. Targets should be written in French. Bonuses in the US are strictly discretionary unless the employer has agreed by contract to provide a particular bonus amount or apply a specified and objective formula.
- Prohibition of financial penalty: French law provides that a fault of an employee cannot be sanctioned by a financial penalty. As a consequence, an employer cannot withhold a part of the salary because his employee has voluntarily not worked correctly. Most US states have so-called “wage laws” that limit an employer’s ability to reduce, offset or otherwise deduct from an “earned wage”. Again, it is important to understand the particular rules that apply in each US jurisdiction.
- Consider legal constraints on remuneration: – France, the UK and the US have all recently adopted legislation which impacts on a company’s ability to set pay. This is particularly relevant to senior executives and those in the financial services area. Although the topic of specific restraints on remuneration is beyond the scope of this blog post, employers in certain sectors (e.g., financial services) must stay abreast of these ever changing (and expanding) rules.