Are Your Payroll Practices Causing Employee Problems?

Are Your Payroll Practices Causing Employee Problems?
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State of the Salary

In February 2010, the Employers Resource Council (ERC) published its “Payroll Practices Survey.” Mind you, the organization only sampled businesses in the northeastern portion of Ohio; even so, there are some interesting trends that the results reveal. For example, the majority of employers favor a bi-weekly pay system. Paper pay stubs, rather than electronic copies, are still the favorite method of communicating information for 61 percent of organizations. Thirty-eight percent of businesses required their workers to set up a direct deposit.

Possible Areas of Discontent

A business that pays bi-weekly and lets workers set up direct deposit is pretty much the standard for exempt and non-exempt employees, so where could the pitfalls be? The answer is not nearly as clear-cut as the survey of payroll habits.

  1. Pay range. A business generally rewards loyalty with an annual raise. Workers who have been with a company for a long time, may run up against the ceiling of a maximum pay range. They no longer have the opportunity to make more money, even if they continue to work for the business.
  2. Dissimilar pay. The employee realizes that another worker, who was just hired for a similar position, makes more money.
  3. Below average pay. Would-be employees usually do a bit of research to see what fair remuneration for their educational background and skill set might be. Once they are hired and receive their first checks, they may be surprised to realize that their pay is well below the average that so many job sites suggested.
  4. Above average pay. A similar problem exists if workers notice that other employees receive above average pay, while their jobs do not pay more.
  5. Favoritism. A new employee is brought in. She receives a generous starting package, fringe benefits and a higher than usual starting pay. Management treats her like the “golden child” and even throws in a sign-on bonus. The new workers, who were hired last week, did not get any sign-on bonuses.

Secrecy Breeds Resentment

There used to be a time when the take-home pay of an individual worker was a closely guarded secret. As business loyalty went by the wayside – in part due to a change in the economic climate – so did the sense of loyalty within the workforce. It is now common for workers to compare pay rates, benefits and bonuses. A worker, who is hired on because of an existing employee’s recommendation, most likely already knows what a position should pay.

It is a big mistake of management and human resources departments to hide behind the mantle of confidentiality and refuse to discuss payroll related issues. This type of corporate attitude lays the foundation for a grumbling workforce. As a result, employee retention is in jeopardy. Adding insult to injury, there is a good chance that a disgruntled employee is an ineffective one who may very well be the reason for customer or client defection.

As outlined by managerial practices expert David Lee: “If service workers are angry, demoralized, or just plain disinterested, no amount of training will offset the service climate their emotional state creates. The economic consequence of not addressing front line employee emotions is disastrous.”

Taking the Bull by the Horns

A proactive attitude is the best bet of any company when it comes to salary. This is a multi-step process that the human resources professional adapts to the business – and also the salary issue most likely to cause discontent.

  • Know the law; then educate the workers. The Fair Labor Standards Act governs the federal expectations of businesses and their pay methods. Although some states’ laws supersede the FLSA – but only if their regulations are more generous to workers – these rules are good starting points. Workers who know about discrepancies in base pay should also know about the company rules governing shift differentials, premium pay and what it takes to qualify for these higher base rates.
  • Set up – and publish – a reward system. If an incoming worker is paid more than a tenured employee, it may be due to a higher level of education, training, licenses earned or certifications received. HR departments must be clear in outlining the pay rate rationale; they then must apply it to tenured workers who seek to achieve a higher pay grade by meeting some of these requirements.
  • Only promise what you can deliver. Do not advertise open jobs with a “competitive pay” notation, if you cannot offer this type of salary right now. Research the pay scale for the positions in your area and base your discussions on these figures. Do not allow incoming workers to negotiate a starting salary based on personal likes, dislikes and hopes for their performance. Be equitable!
  • Offer a long-term vision. An employee at the top of the pay scale needs to receive some type of recognition for continued loyalty to the company. Consider offering stock or additional fringe benefits to a worker whose salary is capped. If you hire on a Harvard graduate with a stellar resume and solid connections – at a higher rate than other new hires would receive – outline how the new employee will benefit the company (and the individual worker) in the long run.

It is impossible to devise payroll practices that are sure to satisfy all workers. Even so, it is indeed possible to nip a lot of employee malcontent and frustration in the bud. An open door policy coupled with a transparent salary structure helps to weed out misinformation. Allowing tenured workers to strive for salary increases by meeting the benchmarks that the company sets forth is another step in the right direction.