Compensation/Pay

Guide

Speak to any employee and the primary reason they are working in an organisation is to take home money at the end of their work period. With earnings being a key motivator, employers have the task of making sure that their compensation packages are as attractive as possible. There are so many different ways to define earnings in exchange for giving labour. Wages, salary and compensation are the most common phrases. Though they seem similar, each of them has a distinct meaning. Also, they differ in the way that they disbursement is done, and both employers and employees need to know the differences.

Base Salary vs Total Compensation

 Two main types of compensation need to be understood. The first is Base Salary, also known as Base Compensation. Base compensation refers to the total amount that exempt employees are paid for fulfilling the basic duties of their job. These employees are not eligible for overtime when working in excess of 40 hours per week as they earn on a monthly basis rather than an hourly basis. They earn salaries where their roles require that they use their judgement to get the job done.

The base salary is the gross amount an employee will earn, which means the total amount earned including deductions of taxes that are done later. The amount remaining once taxes are taken out is known as the take home or net salary.

Total compensation on the other hand, refers to all the compensation that an individual will earn within a year. It includes all bonuses and incentives, as well as any additional perks. In most cases, these perks cannot be easily convert into cash. For that reason, the base salary is known for being monetary compensation while total compensation includes non-monetary elements as well.

When considering base salary vs. total compensation, there are some key differences. Base salary is the gross earnings, while total compensation also includes the full dollar value of additional benefits that are a part of their pay.

What is included in total compensation?

Employers have the option of including various benefits to their employees for total compensation. The list below includes the most popular benefits, from which employers can choose what is most applicable for their employees. The components that you will find in total compensation include: –

  1. Bonuses and commissions
  2. Allowances including cell phone and company vehicle
  3. Paid time off including sick days, vacation days and holidays
  4. Gym memberships
  5. Retirement plans
  6. Insurance that may include medical, dental or disability.
  7. Childcare assistance
  8. Disability insurance
  9. Profit sharing distributions
  10. Legal advice, counselling and additional services through employee assistance programs

To evaluate what is within a total compensation package, a company should offer a total compensation statement. This makes it easy to discern the differences between the base salary and the perks. With this statement, it also makes it easier for employees to compare their total compensation expectations to those from other companies. With great benefits that employees are aware of, they are more likely to be retained.

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