What is Fixed Pay
Fixed pay is the pre-defined and fixed amount a company pays to their employee monthly in return for their services. It’s mentioned on their salary slip as it’s either a part of the salary or complete salary in certain cases.
Table of Content
What is Fixed Pay in CTC
CTC is Cost to Company. It’s the amount that the company pays their employee annually. And fixed pay is a part of this CTC that remains constant throughout the year.
How Does Fixed Pay Differ from Variable Compensation
As the name suggests, fixed pay is the set amount of money you receive on a constant basis as discussed by your employer in return for your services. It does not depend on your employees’ performance or the profit you get for the company.
On the other hand, variable pay is usually performance-based. This amount can be defined by your performance, commission, achievements, or targets that you have decided with your employer.
Advantages and Disadvantages of Fixed Pay
Fixed pay can have multiple advantages and disadvantages. Let’s discuss them one by one.
Advantages
- Fixed salaries make it easier for the employers to set a budget. What you pay to them will always be steady despite the workload or new projects. Unlike contractors, where sometimes your budget can be variable.
- The cost will always remain the same despite how much your employees are working. That way, you’ll never have to constantly monitor each employee’s output. This can save your company a lot of money, since it can be hard for higher level managers to constantly review the performance of each employee and base their compensations on that.
Disadvantages
- With fixed pay, you can almost never ask your employees to work overtime and give them overpay for that. Only the staff, working for hourly wages, can do it for you. The fixed pay employees are usually bound to work 40 hours per week for you.
- Fixed pay may also mean limited earnings for some of the employees as they can never just work extra hours to get extra money from their employers. That way, many of your employees may want to switch if their current job doesn’t take care of their expenditures and bills well.
- There will be no holiday pay for the employees. For instance, many workers who are getting paid get a higher wage during the holiday season, but the employees working full time can never get that.
How is Fixed Pay Determined in the Context of Employment Contract
In the context of employment contract, fixed pay is determined in various forms:
- The fixed pay is determined by the roles and responsibilities the employee is taking.
- It can also be determined by the industry standards and market conditions.
- Another factor that may affect it is the nature of the job of the employee.
- Some employers may take help from salary survey guides to align the compensation of the employees.
- The overall economic conditions may also be a part of the determining factors for employment contract.
- Other factors may include the qualifications and negotiation skills of the candidate, budget of the company, company’s policies, legal requirement for the job role, employment contract, periodic review, and transparent and equitable structure.
Can Fixed Pay be Adjusted Over Time, If So, What Factors Contribute to Such Adjustments?
Yes, the fixed pay can be adjusted overtime. The different factors that contribute to these adjustments can be:
- Employee’s review performance
- The promotion of the employee.
- If the employee decides to change job, then their salary can increase.
- Market conditions can also help in these adjustment
- Inflation and cost of living sometimes cause the employers to give good hikes
- The company’s overall performance can also be a determining factor in the increase or decrease of employees’ fixed pay.
- Other reasons can be market salary trends, as in the benchmarks that keep the companies competitive, longevity and loyalty, and contractual agreements.
We hope you get a fair understanding of what fixed pay is and how it is different from variable pay.