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Meaning of Compensation and Benefits

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Employee compensation and benefit include direct and indirect payments to the employees of an organization. Employee compensation covers their salary, whereas indirect pay includes health insurance, educational support, parental leave, etc. It helps the organization in the recruitment process, job performance, and calculating productivity.

Different Components of Employee Compensation 

Employees within an organization are subject to various benefits and organizations based on employee skills, experience, performance, job level, etc. The different components of employee compensation include basic pay, HRA, DA, special allowances, etc.

Basic Salary

The basic pay is the basic salary withdrawn by an employee in an organization. It depends on the company’s policies and the laws of the company. It is that part of the salary that is taxed.

House Rent Allowance (HRA)

Few companies provide their employees with accommodation or home rent allowances. This is in addition to the paid salary. It is generally calculated based on the basic salary obtained by an employee. 

Dearness Allowance (DA) 

In some places where there is an inflation in the price of goods and services, dearness allowance helps curb the impact of the price difference. This component of employee compensation helps the employees adapt to the changes in standard of living. 

Travelling Allowance

Specific organizations provide travel allowances when an employee needs to travel. It may or may not be included in the basic salary. Its calculation differs from company to company and requires proof of travel. Often employees use their funds to travel, which is later reimbursed by the company.  

Other Special Allowances

Other special allowances are the monetary benefit given to the employee above the basic salary to meet specific requirements. The employers offer these additional benefits for the meeting expenditures, etc. 

Variable Pay

Variable pay is that portion of the salary determined based on employee performance. When an employee hits a target or does overtime, variable pay is given in incentives, bonuses, or commissions. It is given out for the additional contribution beyond an employee’s workload. 

Stock Options

It is a part of employee compensation where companies employees and executives of the company are granted equity. These shares are issued by the company and cannot be sold. It is generally associated with a new company and is awarded to the employees as an incentive for working hard towards the company’s growth. In other words, it can also be said that the employees own a part of the organization.

Components of Employee Benefits

Employee benefits can be monetary, non-monetary, or both. Employee benefits help in attracting and retaining the right talent in a company. These benefits can be paid time off, medical insurances, etc.

It is an essential component of employee benefits where employees can still receive a salary when they take leave or vacation. Also, according to the employee’s position, they can receive a privilege leave.

Medical Insurance

It is another part of employee benefits and compensation and includes health insurance, family health insurance, hospital cover, etc. A few companies also cover the death of an employee and provide financial assistance to the family members of the deceased employee.

Fringe Benefits

It is a non-monetary benefit and covers educational assistance, childcare, flexible healthcare expenditures, etc. It may include benefits such as a company car, gym membership, etc. Fringe benefits may also provide entertainment allowances, discounted travel tickets, family vacation packages, etc.

Loyalty and Retirement Benefits

A retirement plan as part of the employee benefits package is an essential factor in employee loyalty. By offering retirement benefits, an organization maximizes their success rate; it can become easy to get top talents on the door and retain them in the company. 

Differences between Compensation and Benefits

Employee compensation is based on monetary value and is paid to the employee based on their performance. The employee cannot determine it and is decided by the organization. It may be offered on a fortnightly, weekly, or monthly basis. On the other hand, employee benefits are non-monetary value and are not based on performance but membership. They are indirect forms of compensation and are paid regardless of the performance. They can determine their benefits package to be availed. 

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