How Create a Compensation Plan Creating a compensation package is not as simple as adding salary with benefits. There are many important factors to consider. 1. If you offer incentives and/or bonus plans, you need to have very clear guidelines to minimize confusion and possible liability issues. These should not be seen as guaranteed, but should be rewards for performance by an individual, team or company. 2. Before offering a benefit plan, know the precise cost of each component. Do not consider today’s costs only, look at long-term expenses. 3. Do not forget to calculate employer payroll taxes into your overall payroll budget. Social Security, Medicare tax, unemployment insurance (both state and federal) and Workers’ Compensation all add to the total cost. 4. Determine if it is better to pay an hourly wage or a straight salary to employees. 5. Include payroll budgeting. Payroll budgets should include wage and salary payments, commissions, bonuses, incentive plans, payroll taxes and insurance.