Salary, Contract, Commission: the risk is yours

Employment relationships come in many varieties.  It used to be that you got a job, you got a paycheque, you got promoted, you retired.

Then bonuses came along.  People gave up part of their base salary for the potential of a larger and larger bonus.  We saw extreme examples of this on Wall Street when traders worked for a base salary of $1 ( yes, $1) and a potential bonus of $500,000.

The bigger the risk, the bigger the reward.

Then there is the more dramatic kind of variable pay where someone’s whole compensation package is based on commission.  This is very common for realtors.  It’s also not uncommon in the recruiting business.  It promotes a kind of feast or famine lifestyle.  I heard someone describe it this way: “Sometimes we eat steak and sometimes we eat Kraft dinner”.

In a role that has commission, there is usually the potential for a higher financial reward but the onus is on you to make that happen.  It will not be automatically deposited into your bank account week after week.

Now we see contracted employment relationships where someone is hired to perform a service for a fixed term or a specific project.  In other words, everyone understands from the get-go that the gig is going to end.

As the employee, you are taking on the risk of finding what to do next.  In exchange for taking that risk, you are generally paid a premium; perhaps 20-30% more than you would in a permanent job.

Many people thrive in that kind of situation.  They like having different projects and they get used to a higher pay rate.

But it comes at a cost and not just that the job will end.  As a contractor, you may also have to manage your benefits, your vacation and your retirement plans.

So, there can be more money, but there is more risk and a lot more obligation.

Here’s the take-away:  don’t go swooning after the dangling money carrot, if you aren’t prepared to take the responsibility for not only washing it and cutting it up but figuring out how to grow more carrots.

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