Denver HR Consulting Firm |How Do Total Job Benefits and Total Employee Compensation Differ?
While employee compensation and job benefits are the terms that might overlap in meaning, they are usually understood to recognize two different ideas of remuneration. Employee compensation implies or refers to the salary, annual incentives, and long-term incentives like stock options and other equity compensation that he/she works for.
Other benefits include housing paid by the employer, with or without free utilities; insurances (health, dental, life, etc.); disability income protection; retirement benefits; daycare; tuition reimbursement; sick leave; vacation (paid and non-paid); social security, etc.
The Difference Between Benefits and Total Employee Compensation
The pay you receive for the work you perform is known as your salary. It is important to understand the difference between a salary and the total compensation offered for a specific position. Different components go into your total compensation that are not necessarily included in a salary.
An exempt employee is someone who receives a set amount of money, typically on an annual basis, rather than being paid an hourly wage. In order to qualify for a base salary, an employee usually needs to hold a position that allows them to exercise independent judgment in the work they perform.
This type of employee’s base salary is expressed in terms of gross income, which is before any taxes are withheld. In order to qualify as an exempt employee, an individual must meet certain criteria set forth by the federal government. The U.S. Department of Labor has an established minimum base salary for an exempt employee who is not eligible for overtime pay.
Total compensation is expressed in the same way as a base salary, which is in terms of gross income on an annual basis. However, it includes more than just the money paid to an employee. Total compensation includes the base salary, but it also includes the value of any benefits received in addition to your salary.
An employee often knows what they are paid as the base salary, but may not know the dollar value of the additional benefits received. Providing this type of statement can help an employee understand what they receive in total compensation. Some companies use total compensation statements as retention tools to help employees understand their value and feel appreciated.
What Do These Differences Mean?
When comparing positions, it is important to compare the total compensation package rather than just the base salary. An employee’s salary typically includes only the money they are paid for the work they do in a position. This is usually expressed as an annual amount, rather than an hourly rate, and does not reflect any taxes that must be withheld or any other withholdings.
It also includes any nontaxable items given to employees, such as certain types of insurance coverage, tuition assistance, and most funds provided for employees to use toward commuting costs. The items included in total compensation are often referred to as non-cash benefits, although some may be paid in cash. For example, an annual bonus or a commission would be included in your total compensation but may not be reflected in your base salary.
Many of the benefits are not paid in cash, including insurance, paid time off, and any fringe benefits.
How to Determine an Employee’s Total Compensation
In order to determine your total compensation, you can follow a series of steps to figure out exactly what your employer provides to you in exchange for the work you perform. The first step in figuring out your total compensation is knowing your base salary.
If the total annual salary is not included on your pay stub, simply calculate the gross amount by the number of pay periods and you will have your gross base salary figure. Most employers provide time-off benefits to their employees. This may be offered in various options, such as sick time, vacation time, and/or holiday pay, or it could be offered as a lump total of paid time off.
Multiply the number of days off you have, across all paid time off buckets, by the amount of money you are paid for a day of work to get that total. Full-time employees are usually eligible for insurance benefits through their employers. Providing insurance is actually a requirement for employers with a certain number of employees.
You will need to add the value of health, dental, vision, life, disability, worker’s compensation, unemployment, and any supplemental insurance policies to get the total. Some employees are paid commissions, which are additional funds paid based on job performance. A sales employee might receive commission pay if they reach certain goals.
However, others that may receive commission pay include recruiters, account managers, and real estate professionals. In some cases, commission pay is in addition to a base salary, while in other positions, it is the majority of the compensation provided. Any commissions you receive should be calculated and included in your total compensation.
For example, if your salary is $100,000 and 50% of that is based on performance, you would be guaranteed to earn $50,000 in a year and could potentially earn another $50,000. Your total compensation amount should also include any bonuses you are eligible to receive. Most employers provide some type of retirement benefit, which allows employees to contribute to a retirement savings account to prepare for this stage in their lives.
When Recruiting and Creating Positions Consider The Total Compensation in Your Outlook
From an employer perspective, focusing primarily on the base salary is often a mistake when budgeting for new employees. You have to look at the whole picture, or the total compensation, to make the right decision. You can also use a unique total compensation package to put yourself in the running with better qualified candidates for the positions you’re offering. Need some help determining your total compensation package? Let People Partner HR help. Contact us today for a free consultation.
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