Set the right pay rates

Advantages and disadvantages of pay-rate systems


When you select a pay-rate system, you are choosing how you will reward your workers.

Basic-rate systems

Basic-rate systems pay workers a fixed amount on an hourly, weekly or monthly basis.

These are simple to operate but do not offer many incentives to workers.

Variable or incentive schemes

Variable or incentive schemes are where all or part of a worker's pay is based on performance, skills, results and/or profits. They could be more expensive if your workers are highly motivated and successful but can also help increase profits.

Incentive schemes can help to generate in workers a long-term interest in the success of the organisation.

They can be based on individual performance, group performance or a combination of both:

  • An individual incentive scheme can help to motivate your workers. However, they may become demotivated if they find that their pay isn't as high as they expected it to be.
  • A group incentive scheme can encourage team working and a sense of contribution. However, they could also result in unequal performances and in extra payments being seen as the norm.

Acas guidance on pay and wages.

Examples of incentives for workers

Pay is not the only factor that can motivate workers. The following other incentives can also play a part:

  • non-contributory pension schemes
  • company cars
  • assistance towards childcare
  • achieving qualifications
  • good work-life balance

    Choosing a system

    You will need to find the right system or combination of systems to suit your business. Always weigh up the pros and cons of each.

    Whichever system you choose, you should try to make it as transparent as possible. This is so that everyone knows how their pay is calculated and how they might get a bonus or any other type of pay enhancement.