If you own a small business, you probably have employed salaried as well as hourly workers. While the salaries employees work for almost 40 hours per week, the hourly workforce is part-timers. This kind of system functions well for any small-scale enterprise. However, recently you have come across a new sort of pay structure, called ‘Flat Rate.’ What is a flat rate in business?
A flat rate refers to a payment method where the employee is paid a fixed amount of money per specific task irrespective of the time taken to complete it. In other words, one employee may take two hours to achieve a particular job while the other accomplishes it in three hours, yet both of them will receive the same pay. Initially popular with the automobile industry, the flat-rate method is now utilized by authors, marketers, graphic artists, and lawyers. With these experts joining your professional world, you will gain a greater familiarity and ease with the new system. But as no payment method is perfect, even the flat rate system comes with merits and drawbacks.
Automobile Workers Popularised the System of Flat Rate
The auto mechanics industry provides a fair standard reference for professionals of other fields. A mechanic’s salary is based on the flat rate criteria, and guarantees fixed payment based on the job. For instance, if a brake job’s price is set at $500, the customer must pay $500 regardless of whether the mechanic is slow or fast-finishing his task.
For a mechanic, the flat rate extends a secure system of salary. Also, it serves as a motivation to do a more significant number of jobs to maximize his income.
Further, the system assures the customer too. For instance, if the brake job appears more complicated and takes a longer time than usual, even then, the customer is required to pay $500 only. So, the flat rate method offers a guarantee to both parties in every scenario.
Here is an overview of the benefits and drawbacks of a flat-rate pay structure:
Benefits of Flat-Rate System
The flat-rate system follows a standard principle for every professional. Whether it is a lawyer, graphic artist, author, or marketer, they all similarly charge the payment. Concerning your perspective, the flat-rate pay structure presents the following benefits:
This kind of payment method incentivizes the worker to deliver a good job. Several small-enterprise owners recount the terrible experiences of facing uncertainty related to the billable hourly work. If you do not set some hourly-based work criteria, you feel equivalent to having signed a ‘blank cheque’ and lurking in the dark regarding the payment.
A fixed-rate for a particular task lets you know how much you need to spend. This way, you can make suitable economic choices. With a flat rate method in place, you won’t have to deal with the hourly system’s unpredictability.
- Lesser Conflict over Payment
The hourly payment system often causes disputes and disagreements like: Why did the task take too much time? What exact work was being carried out in this time period? Why should I pay this much for this? In complete contrast, the flat rate method does not provide any ground for such kind of arguments. The employer knows what he has to pay, and the employee knows what payment to expect.
Drawbacks of Flat Rate System
It is not possible to not have any queries about the flat pay method. These queries appear at the start of any professional relationship, beginning with the question: What is your criterion behind this rate?
In fact, some professionals bring in a favorable hourly rate in the flat-rate system. For instance, if a virtual assistant wishes to get $35 per hour and totals up a formatting/typing job to 20 hours, he/she will estimate $700 as the flat-rate pay. An honest worker will clarify these facts and ask you to verify industry rates for your convenience. So, this type of worker may even agree to be paid somewhere between $600-650 to deliver consistent work.
In this scenario, your decisions will determine your position and reputation in the market. While some small business owners risk their reputation by staying adamant on a low pay rate, others have a long-term vision of maintaining the right image and do not hesitate to offer top dollar payments. To such far-fetched business people, talent assumes a top priority, and talent retention remains an essential business strategy component. They also like to ascertain that potential employees learn about their good practices in the marketplace, which enhances the overall growth of the business. So, these employers do not mind overpaying in the process.
Apart from the risk of overpayments, the flat-rate pay structure may lead to the following troubles:
- Quality v/s Time
The quality of the work may be compromised in the quest to take up more work. In other words, workers may complete the tasks in unreasonably less time to get more jobs to earn more.
- Disguised Work
The work or project assigned may not be what it is being paid for. The job may take on an identity of its own.
- Incompetent Workers
Some jobs like legal work may be too complicated and need to be done very carefully. So, it can be really tough to set a justifiable flat-rate pay for them. In such cases, employers may hire incompetent people and end up suffering later. Unless you have known the workers well, it is risky to assign complex tasks to them. Similarly, logos without a ‘rider’ extend royalties to graphic artists if the enterprise attains its goals.
You may sometimes like them, despise them, or feel constrained to work with a flat rate payment method. But always remember to incorporate a clause that permits renegotiation of the agreement from both sides in case of a change in work criteria. Besides general sense, this seems like a good business acumen too.