The issue of when to make these payments is also difficult as it will affect motivation and a certain amount of jealously and resentment from the other employees may arise. If employees believe that they are being paid fairly for the value of the work performed, then a state of pay equity is attained and this has a dramatic effect on motivation. Employees who feel that they are being paid what they are worth are motivated whereas those who believe the opposite are likely to be unmotivated and less productive.
The main differences between hourly employees and salaried employees are that the latter are paid a fixed amount calculated on a weekly, bi-weekly or monthly basis and receive certain benefits whereas the former are compensated only for the hours they work. Salaried employees normally receive benefits such as health care and insurance benefits whereas hourly employees only receive pay for hours worked. The compensation of employees is affected by their exempt or nonexempt classification in accordance with the Fair Labor Standards Act. The Fair Labor Standards Act (FLSA) states that nonexempt employees covered by the Act must receive 1.5 times their regular pay for working overtime in excess of 40 hours a work week. Exempt employees not covered under the Act for the overtime provision are normally white-collar workers. The Department of Labor determines if the employee is exempt or not based on the employee possessing independent judgment and other salient factors. The wages for a job are determined by internal and external factors which form the wage mix. The wage mix combines internal factors, such as the employer’s ability to pay and external factors such as the going rate for that job to create the mix upon which salaries are determined. The internal factors that affect the wage mix include the compensation strategy of the employer, the job’s worth , the value attached to the particular employee and the employer’s ability to pay. Some firms do not have a proper compensation plan and so wages are determined by the subjective view of the business owners as to what the individual should be paid. Thus, the wage will be considerably influenced by the labor market or collective bargaining by unions. The external factors that can determine the wage mix include the labor market conditions, area wage rates, cost of living and collective bargaining. The rate of compensation is usually adjusted upwards according to the Consumer Price Index (CPI) in order for employees to retain their purchasing power. The job evaluation process consists of assessing the relative worth of jobs in order to establish which jobs should be better paid than others within an organization. This is the explanation of a job evaluation process and it is normally performed only by bigger firms who have the expertise to do it.