Non-typical pay structures | Employment | Financial Literacy | Khan Academy

In this video, we're going to think about all of the ways that someone can work or get paid or have employment. We're not going to list out every occupation or how someone might do it, but the general categories. Now some of you might be saying, "Well, isn't just the main way to become an employee just submit your resume with cover letters and hopefully get a job at a company or some type of organization?"

The simple answer is this: this is definitely a way of having employment or getting work or getting paid, but it's definitely not the only one. But let's just start here. So an employee, this could be being an engineer for say a tech company, it could be being a secretary for say a hospital. The general—and I could list probably a thousand other different types of job—but the general idea behind an employee is that you're going to get a steady paycheck from your employer.

You're probably going to get benefits, and we've talked about that in other videos. Now, another type of work is where you are an independent contractor. One way to think about this is you're not just going to work for one organization; you are working essentially for yourself, and then you would contract to do things for other people or other organizations. For example, you might be an individual or an independent contractor as a lawyer.

Now, that's not the only way to be a lawyer. You could also be a lawyer as an employee if you work for a big law firm. You could be an independent contractor as, let's say, a builder—a home builder—where you work with your clients to build a house, and then you move on to another client. You could have multiple clients at the same time. The clients are not your employer, and I could keep listing things. Once again, just as a lawyer could be an employee or an individual contractor, you could have certain occupations that could be in different one, in different categories.

Another one, for example, that could be either could be a doctor. You could work for a hospital system, and then you would be an employee, or you could work on a daily basis—it's called "per diem" in medicine—where you work a day here, a day there, and then maybe you work for someone else, and there you are more of an independent contractor.

Now, another type of work is freelancer. Freelancer, and this could be, "Hey, I'm going to say be a writer, and I will write one article for this newspaper, one article for another newspaper, or I might produce this video for one person and then produce another or edit another video for another one." So let me say editor of—I'm thinking movie editing or video editing—but it tends to be the type of work where you're doing these fairly short cycle jobs.

Once again, you could do it for a lot of different folks, and as you could tell, there's a lot of similarity between freelancer and independent contractor. Generally speaking, a freelancer's really moving between jobs pretty quickly. They might be doing one job and then five minutes later they're working on another one, while an independent contractor might not have quite as many jobs or is not moving quite as rapidly between them. But there is a blurry line between the two.

If we want to keep talking about blurry lines, then another category which has become very popular due to the gig economy apps like Uber, apps like Lyft, is a gig worker. Here, it could be a rideshare driver. You could work for one of these grocery delivery or restaurant delivery companies, and it's kind of like a freelancer, but gig worker—you tend to be using some type of an app. Say, "Hey, you know what? I have six hours free tonight. I am going to either drive folks around or maybe I'm going to deliver some groceries, make a little bit of extra cash."

It's all on my own time when I want to do it, and it usually involves some type of app, but it doesn't have to necessarily. Now we can keep expanding our vocabulary here. You could have commission-based pay, and commission-based pay is not necessarily something that is completely different than, say, being an employee. For example, commission-based pay—you could be a salesperson of some kind.

Let's say you're a salesperson at a car dealership. It's very likely that you are going to be an employee of the car dealership, but every car you sell, you're going to get an extra commission. They want to create an incentive for you to be out there selling cars. You could be a realtor or real estate agent where maybe you could be working independently and only making commissions, or you might work for a company.

In that situation, they'll probably pay you some base salary and give you some benefits, but then a lot of your salary—or a lot of your compensation, I should say—is going to come from how many houses you buy or sell or rent out or manage, and then you're going to get a commission based on that. Now, similar—well, maybe not so similar because this tends to be on a much smaller scale—is tip-based pay.

The most common version of tip-based pay is being, say, part of the wait staff at a restaurant where you might get some type of a salary. The restaurant will hire you, but a lot of your compensation might just be that 15%, 18%, 20% that people give you at the end of the meal—either that you're keeping yourself or that you might have to share with the rest of the staff. You might be working at a hotel where if you carry someone's baggage, they might give you a tip.

So all of that is another form of compensation. Once again, not all of these have to be exclusive from each other; there might sometimes be combinations of them. Related to tip-based pay, you could think about cash-based pay. Cash-based pay tends to usually be smaller jobs, a little less formal, like being a babysitter or maybe if you're just walking dogs for folks in the neighborhood. They might just pay you $20 when you do that work.

If you really think about it, tips can also be a form of cash-based pay, but it's more tips are based on what someone wants to pay you, while cash-based pay is like, "Hey, you know, I'm charging you $20 for me to do the following thing," and then someone is paying you. The last category, which I think is a great category to be in if you could have it, is—let's just call it passive income.

Passive income, what does that mean? Well, all of these other things are active; you have to do something in order to get that money. Passive income, you just sit there and somehow money comes to you, and usually that's because of some investments that you have of some kind. Maybe you have some real estate that you are renting out, maybe you have money put in the stock market and it pays you dividends, and it's also growing in value.

Maybe you have bought some bonds, and once again, it's giving coupons, which are payments, and that allows you to live off of it. As you might have sometimes heard, a lot of us work for a living, but if you are able to put up enough money aside, you can—instead of working for your money—your money could work for you. So passive income is a great place to be if you can save enough and have a large enough of an investment portfolio.