advantages of straight salary plan
However, a straight salary plan also has its own advantages. This requires very clearly defined territory outlines and territories that produce enough income to support competitive wages. Your salespeople are paid on commission. If an employee makes no sales during a month, he doesnt get paid. This compensation category also includes restaurant employees paid mostly in tips. Millennial Accounting primarily serves two nichesreal estate and property managementand is on a mission to serve, inspire, educate, and problem-solve. The sales teams support each other to reach a common goal. They receive fixed sums of money at regular intervals (usually each month). Similar to straight salary, this compensation structure offers employees a guaranteed base income annually, but also offers performance-based income in addition, unlike straight salary. Fringe Benefits and Salary Plan based upon the employee's rate of pay immediately preceding retirement. 1. 4. The independent contractor category is broad and includes everything from lawn services to sales to doctors and lawyers. Due to the complexity of the plan and its many compliance issues, few companies offer equity or stock in the short-term. Straight salary compensation plans are ideal in industries where the normal structure does not involve (and might even prohibit) direct sales. Each is then rated on 12 factors, as shown in the table below. \textbf{\textsf{Accounts}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Murray Kiser,}} && \textbf{\textsf{Fees}} \hspace{6pt}\\ Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Such a plan is quite common in the services industry as well as in the industrial goods sector. Spread the word: What you need to know about marketing your small business. Which of the following accurately describe per diem expense plans? Which of the following is not an advantage of the . Following are the advantages of the straight commission plan: Pay relates directly to performance and results achieved. Service focus: Such a plan works well for sales positions where pushing a product may not be necessary and customer service is of utmost importance. Bal.1.2.3.4.5.6.7.Bal.Cash30,000+35,00026,00015,0002,0007,20014,800+AssetsSupplies4,000+1,5003,0002,500+Land75,000+15,00090,000==LiabilitiesAccountsPayable8,000+1,5007,2002,300++MurrayKiser,Capital101,000101,000OwnersEquityMurrayKiser,Drawing2,0002,000+FeesEarned35,00035,000Expenses26,0003,00029,000. Therefore, employers are not required to pay overtime if employees work more than 40 hours per week. 3. Salespeople are usually paid on a straight salary compensation, in which there is no opportunity to earn incentives. There are many people who would simply prefer to work with the relative security of a salary position. An employee who works only on salary has little external motivation to go above and beyond. Tips may be considered part of the employees wages, but the employer must pay no less than $2.13 an hour in direct wages and make sure that the amount of tips received is enough to meet the remainder of the hourly minimum wage. \end{array} The economy has entered a period of recession, and even the Administration's economists predict that it will remain so for at least three more quarters. Did your choice agree with Sturges' Rule? }\\ In the same vein, contractors are not subject to withholding and are therefore responsible for their own taxes (the self-employment tax). Browse the definition and meaning of more similar terms. Your paycheck is based on a specific percentage of the sales that you are able to generate. Bal.1.2.3.4.5.6.7.Bal.AssetsCash+Supplies+Land30,0004,00075,000+35,00026,00015,000+15,000+1,5002,0007,2003,00014,8002,50090,000==Liabilities+OwnersEquityAccountsMurrayKiser,MurrayKiser,FeesPayable+CapitalDrawing+EarnedExpenses8,000101,00035,00026,000+1,5002,0007,2003,0002,300101,0002,00035,00029,000\begin{array}{lccl} Increment is given annually as per the scale of pay, and after a certain number of years of service, salesman is promoted to a higher scale of pay. ii) There will be no surprise of payroll expenses. These plans often include a straight salary income for training periods or during low seasons. Which one of the following statements regarding global compensation is false? the working capital requirements are lessened with the straight-salary compensation plan. Plan C is to issue 100,000 shares of nonvoting, $3.75 preferred stock ($3.75 is the annual dividend paid on each share of preferred stock). \hline\\ Employers who pay by the hour should focus on increasing morale and showing employees they are valued in order to avoid turnover. Offers considerable incentive for the salespeople. Sparks holds a Bachelor of Arts in business. -7,200\\ Review the example home inventory shown before. In order to "weather the storm," the best course of action among those presented below is to: Raise commission rates on higher margin products in all regions in order to boost sales. provide salespeople with trips and other rewards. Help Miller rank the top three cities that BIA should consider as its new site for servicing aircraft. 7. Guaranteed income With a salary plus commission plan, you still earn a base salary regardless of how many products you sell. Salespeople can be compensated in a number of different ways. -2,000\\ As defined by the IRS, independent contractors are people who are in an independent trade, business, or profession in which they offer their services to the general public. Employees and independent contractors are mutually exclusive, as a person is either one or the other. Once the person has established himself in the area, the company can switch to performance-based salary. A sample of 10 NCAA college basketball game scores provided the following data (USA Take a reactive approach to seeking out motivational problems and sources of frustration in the salesforce. &&\textbf{\textsf{Assets}}\\ -26,000\\ Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. Straight salary method of remuneration Meaning, Suitability, Advantages, Disadvantages. Your ultimate goal is to control selling expense and provide extra rewards for added results. Payroll essentials you need to run your business. Management can direct Salesforceinto various activities more easily. They should be made during recessionary periods. Perhaps the most serious shortcoming of straight-commission plans is that. . All of the above. Using the mean and standard deviation found in part (a), Once you own property, you should take steps to protect it from loss, theft, and damage. Person A pays over $18,000 in tax and receives a net income of around $62,000. they contribute little to company loyalty, resulting in potential salesforce control problems. If the nonselling administrative duties of the salesperson are of major importance, this compensation Is your team struggling with burnout and a lack of fulfillment at work? What was the difference between the day's high and low for one share of Southern Copper? But under the straight commission method, sales costs are matched with sales. , a pet-friendly working environment, etc.). Once the salesperson has established himself in the area, the company can then switch to a performance-based compensation plan if desired. Which of the following is not mentioned in the text as a challenge to sales managers attempting to adjust \text{SCCO} & \text{Southern Copper} & \text{29.53} & \text{19.90} & \text{22.06} & \text{-1.79} & \text{1,823,761} & \text{22.07} & \text{22.07}\\ \hline Although quite popular, salary compensation plans have some disadvantages. Happy hours are a great way to connect with colleagues, share experiences, and have some fun together. 10. Disadvantages of straight salary compensation. Required fields are marked *. Recommend a plan to the board of directors. Sales contests will continue to be an important tool for achieving expedient results. Good salespeople can continue to receive residual commission ever after they leave the company through negotiation. Subscribe to our newsletter and stay updated on the latest HR news and trends. Provide equal pay to all employees at the same level. Prepare an analysis to determine which plan will result in the highest earnings per share of common stock. PMR is common in sales and is good for startups with low liquidity. The directors are considering three financing plans. An in-depth guide for business owners, Financial statements: What business owners should know, Small business grants: 20+ grants and resources to fund your future without debt, How to choose the best payment method for small businesses. The workplace catchphrase you need to know. One thing to keep in mind: If the commission rates are too low, they may seem disingenuous and could decrease morale or cause bitterness among employees. In most companies, the base pay is determined by the workers job title and job role. virtually automatic, this form of commission rate would be appropriate: An example of a selling situation requiring a commission split would be. They don't want to worry about the inconsistencies associated with a commission-based pay. Plan A is to borrow at 6%. \begin{array} {c} The EU has made changes in airline regulation that dramatically affect major European carriers such as British International Air (BIA), KLM, Air France, Alitalia, and Swiss International Air. According to the text, which of the following is not one of the rewards typically offered to salespeople? The board of directors of this family-owned company believes that Park N Fly could earn an additional $1.5 million income before interest and taxes by expanding into new markets. Defined by the FLSA, tipped employees are those who receive more than $30 per month in tips. Companies are increasing incentives for foreign-based employment. Each line designated by a number indicates the effect of a transaction on the equation. One of the advantages of the gross margin commission plan is the firm and salesperson share the same pool of money so both are interested in maximizing that amount. Per the IRS website, the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The main differences between the straight salary method and straight commission method are explained below: Straight Salary Method vs Straight commission Method. , holiday pay, and parental leave) to lifestyle benefits (like flexible working hours. Purely paid-by-commission plans can create an unfriendly, competitive environment within teams. 6. This type of compensation refers to a set hourly amount without additional performance-based income. && +1,500\\ \end{array} Save my name, email, and website in this browser for the next time I comment. 7. \textbf{\textsf{Liabilities}} & \bm{+} &&&\textbf{\textsf{Owner's Equity}}\\ Salesmen have the greatest. Finding balance and setting boundaries at work. Your base pay provides a steady income during seasons where commission may be more difficult to earn. except. The primary benefit of salary-plus-commission plans is they allow the compensation program to be tailored to the needs of a particular firm. nonfinancial reward: The Million Dollar Roundtable designation in the insurance industry is an example of this type of It assures a steady minimum income to the salesmen. Of course, there are exceptions to every rule. Working as a contractor definitely has its benefits. Your email address will not be published. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. \text{Bal.} On a straight salary, they will be paid this regardless of how many deals they close. Because employee base pay is often low (employers can pay as low as $2.13 hour, which means the entire paycheck can go to taxes or withholding), making a livable income can be tough without significant sales. 2. Some people won't work for anything other than a fixed salary. How much investment capital should you accept? Unlike a heavily commission-based position in which income relies on sales volume, the salesperson earns the same amount of compensation regardless of how much she sells. All of the following are typical reimbursable expense items except. Whos using straight salary plus commission compensation? direct salespeople's behavior toward the attainment of organizational objectives. Circumstances: Straight salary method can be used under any circumstances, whereas straight commission method can be used only in cases where the sales made by the salesmen can be measured. This form of commission rate may actually result in overselling and higher selling costs to the company: When it is difficult for the salesperson to secure the first order from the customer, but reorders are Compensation plans, once set, do not need to be evaluated to determine if it will negatively affect salespeople's wages and total costs. Straight salary offerings can also be good for attracting new talent thats concerned with stability. a. salaries are a fixed cost to the firm and thus tend to decrease proportionally as sales increase. The directors, who strongly wish to retain family control of the company, must consider issuing securities to outsiders. In designing plans one must balance the goals of the firm, as well as the needs of the sales force and customers. Companies often feel they can justify a lower salary or rate if they include a more robust benefits package. Further, the straight commission motivates poor performers to become more productive since it rewards good performers (Johnston and Marshall, p. 329). the requirement that expenses be charged and the bills sent directly to the company for payment by the accounting department. Basis: Straight salary method is based on the time spent on the job, and not on the volume of sales effected by the salesmen. She helps HR professionals identify issues with their talent management and employment law. Since there are no (monetary) incentives to work harder, a non-competitive environment may tempt employees to become complacent, limiting the companys growth. \text{Wisconsin} & \text{76} & \text{Illinois} & \text{56} & \text{20}\\ Which of the following statements regarding sales contests is true? For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. 4. A straight salary can greatly benefit someone who is transferring to a new territory. The different types of compensation include . The company sets a minimum and maximum range that can increase, decrease or remain the same, depending on the workers performance.
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