Recently I was advising a client on the pay range for a few positions we recommended they hire and they asked about what our ideal pay structure would be. Pay is a complicated topic. Most businesses have some sort of benefits structure that includes insurance, time off, and so on. There are also market conditions, like the current economy, regional cost of living considerations, skill levels, and a variety of other factors that influence pay. Currently, all of our employees are freelance. However, years ago I did have some people permanently on staff. Here is how things were set up.

Most of our employees are from the Seattle area which has a fairly high cost of living. There is also a great deal of competition for skilled people because of Microsoft, Amazon, Starbucks, Boeing, and other large employers in the area. We pay a premium for highly talented people as a result.

We hire and engage freelancers that can jump in a start working immediately with little or no ramp up time. Everyone needs to be independent and do their work with a minimum of supervision. In fact, I hate supervision. I want people that are experts at what they do and I expect them to be able to take direction from me and turn it into magic for our clients. Our clients expect that from us and we pay a premium for people with that ability.

When we had salaried employees, we didn’t offer benefits in the traditional fashion to them. The typical approach is antiquated in my opinion and does not fit with the way we did and currently do business. I also consider my employees partners in serving our clients, so there are a certain amount of sacrifices that happen. Sometimes we work like crazy to meet a deadline or answer phone calls with clients half way around the world at 1:00 AM in the morning. I do not want or expect heroics on a regular basis, so we work to minimize it when possible, but it happens. A business as small as mine needs people to be flexible, so I am flexible about in how people work. Defined benefits are not conducive to that.

How are we different? There was no vacation time. None. Zilch. Nada. And my employees love it. That’s because if they wanted time off, they took it, and they got paid. One week or five weeks, I do not care. They take what they need and they got paid. All I asked is that they try to work around client deadlines as much as possible.

You might think people would abuse this and you would be wrong. More often than not, I was forcing people to take vacations. If a vacation was needed, I wanted them to take it. Worn out employees are not at their best. And because we all telecommuted, some of us would go somewhere for a month or two and work from there. I expected a lot from my people and I let them enjoy some downtown when they needed it.

As you might imagine, there was no sick leave, bereavement, maternity or paternity leave, and so on. You take the time you need and want, and you got paid. If you were sick or needed a “mental health” day, then take it. Having a baby or your partner is, then take a few months off.

What it boils down to is that the people we hire are professionals and damn good at what they do. I am not interested in babysitting them, and they do not want that. They are capable of making adult decisions on what is right for them, and what is right for our business and our clients. My employees know they have it quite good and as such they give me and our clients the best possible work.

As for health care, employees were responsible for finding health care they liked and we paid their premiums. That let them choose the plan that worked best for them and their situation. Everyone made well into a six figure salary with the single exception of our administrative assistant. She actually made well above what other admins made and above the median salary in Seattle (which is much higher than the national median income). I am sure there was also a premium in there somewhere for having to deal with me.

Today, everyone is freelance. This had nothing to do with benefits and more to do with the flexibility of my business and the ability of people to work for me to have flexibility. I negotiated a baseline of work with them and pay at that level even if they are not working. Basically, I have them on retainer. This is good for them and for me. If I were to go back to salaried employees, the above structure would be what I use.

The other side of the business is our freelancers. We pay above average rates because we expect above average work. We have contractors all over the world and so the pay rates are all over the scale, but they are always above the typical rate for that area. Our rates are based on skill level (this is the most important factor), average contract rates for the area, and we build in a buffer for administration, down time, taxes, tools, and a few other factors.

We typically do not like paying for work on an hourly basis. This is not to get more work for less pay out of our contractors. Rather, we build into a project schedule the assumption that there may be some issues. If there are none, then the contractor is very well compensated for their work. If some extra time is required, well then they are only compensated well as opposed to very well. They come out ahead in nearly all circumstances. They are happy and we are happy.

The one time we had a project that went sideways (hey, it happens), we actually paid the contractor extra even though he did not ask for it or expect it. He knew that sometimes projects have unforeseen issues and just considered it part of doing business (that’s one of the reasons we hired him in the first place!). In this case, a new regulation unexpectedly came into existence toward the end of the project requiring a significant amount of rework. When we paid him, he told us we overpaid. We explained that he spent three weeks more than what we anticipated when we calculated his compensation for the project. He did not want to keep the money. We insisted. He does some of the best work for us still.

The final factor that applies to everyone that works with us, including our clients, is an extension of my personality. I do not like working on Friday. I try to avoid meetings and work in general on Friday. Unless a client has a real need, we typically avoid anything on Friday, though I am available and we have people available if something comes up. I do not expect people to work on Friday or over the weekend. Most of them do because they have their own schedules, but they typically will not be hearing from me.

I know that most businesses are not structured in such a way to compensate the same way as we did and do. Nor do most business owners see the value in compensating as well as we do. That is unfortunate. My overhead is reduced significantly, I am not having to keep track of who is doing what, freeing me to focus on our clients, and I am able to attract great people to work for me (making it easy for me to not have to micromanage). People may be my biggest business expense, but it is one I am happy to pay. They have a vested interest in the business being successful and that benefits me and my clients.

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