Compensation is payment to an employee in return for their contribution to the organization, that is, for doing their job. The most common forms of compensation are wages, salaries and tips.
Compensation is usually provided as base pay and/or variable pay. Base pay is based on the role in the organization and the market for the expertise required to conduct that role. Variable pay is based on the performance of the person in that role, for instance, for how well that person achieved his or her goals for the year. Incentive plans, for example, bonus plans, are a form of variable pay. Some people might consider bonuses as a benefit, rather than a form of compensation. Some programs include a base pay and a variable pay.
Employees have certain monies withheld from their payroll checks, usually including federal income tax, state income tax, FICA (social security) contributions, and employee contributions to the costs of certain benefits (often medical insurance and retirement).
Employee benefits typically refers to retirement plans, health life insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc. Benefits are increasingly expensive for businesses to provide to employees, so the range and options of benefits are changing promptly. You might also think of benefits as company-paid and employee-paid. While the company usually pays for most types of benefits such as holiday pay, vacation pay, etc. some benefits, such as medical insurance, are often paid, at least in part, by employees because of the high costs of medical insurance.
Accountants on Air offers a compensation and retirement plan consulting that enables clients to leverage compensation and benefit programs to take their business to the next level. In an evolving regulatory landscape, our vast technical experience positions us to serve as a strategic partner, designing tailored solutions aimed to maximize your organization’s most complex and valuable resource.