One of the main choices that employees and employers face is whether to choose between fixed rate and hourly pay. There are advantages and disadvantages to each of these forms of payment, and it's important to understand them before making a choice. So, let's get started:
Fixed rate
A fixed rate is a payment for a fixed amount of working time, regardless of how much work needs to be done. This means that an employee earns the same amount of money every week, regardless of how many work tasks they complete. A fixed rate can be set for a day, week, month, or year.
Advantages of a fixed rate:
- an employee can easily plan his or her budget, as he or she knows how much money he or she will receive for a certain period of time;
- employers can better control their salary costs, as they know exactly how much money they have to pay the employee each week, month, etc.
Disadvantages of a fixed rate:
- if an employee works fewer hours, his or her salary will be the same, which can lead to a decrease in motivation to work more.
- similarly, if an employee has worked more hours and their salary does not change, this can lead to a feeling of inequality in remuneration, which will reduce the efficiency and quality of work.
Hourly pay
Hourly pay is payment for each hour of work. This means that an employee is paid for each hour they work. Hourly pay can be set per day, week, month or year.
Advantages of hourly pay:
- an employee's productivity can be increased because they know they will be paid for every hour they work;
- employers can save more money as they only pay the employee for the hours they have worked.
Disadvantages of hourly pay:
- the other side of the coin is the negative impact on efficiency. For example, you have a designer in your company who needs 5 hours to create mockups for a one-page website. But it takes your senior designer 2 hours. Does that mean he should get paid less? No, you can increase the hourly rate and temporarily solve the problem, but it doesn't always work well.
Which payment model should I choose?
Both pricing models have their pros and cons. But there's no reason you can't use both.
When to use a fixed rate?
Communicating with the client before starting work is key to the success of fixed fees. A flat rate is ideal for the following types of work:
- Risky work
- Small projects with predictable milestones and tasks
- You can easily estimate the cost based on previous projects
- The scope of work is specific, the requirements are clearly defined
When to use hourly billing?
Hourly billing is ideal for the following types of work:
- High risk, high value work
- Project scope cannot be fully defined
- Long-term projects with dynamic requirements
- The scope of work is expected to change as the project progresses
But remember, whatever payment model you choose, using a time tracker will help you achieve your goals and increase your salary.
Try implementing Yaware.TimeTracker – a simple and convenient time tracker for teams of any size and structure, designed specifically to increase productivity and achieve better results.
With its help, you will find out:
- what time of day is the most productive for employees;
- what resources employees use to complete a specific task;
- how much time is spent on a task;
- when difficulties arise in completing a task and help is needed;
- what distracts employees and prevents them from moving forward.
In addition, Yaware offers 14 days of free use of the software so you can experience its functionality to the fullest!
Conclusion
There will never be one right answer for every situation, but it is important to weigh the pros and cons of each salary model, and to assess the value of your work and the risk you are taking.
