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Employee Benefits and Compensation (Employee Pay)

Employee Benefits and Compensation (Employee Pay)

© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.
Adapted from the Field Guide to Leadership and Supervision in Business
and Field Guide to Leadership and Supervision for Nonprofit Staff.

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Employee Benefits

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 rapidly to include, for example, flexible benefit plans.

Benefits are forms of value, other than payment, that are provided to the employee in return for their contribution to the organization, that is, for doing their job. Some benefits, such as unemployment and worker’s compensation, are federally required. (Worker’s compensation is really a worker’s right, rather than a benefit.)

Prominent examples of benefits are insurance (medical, life, dental, disability, unemployment and worker’s compensation), vacation pay, holiday pay, and maternity leave, contribution to retirement (pension pay), profit sharing, stock options, and bonuses. (Some people would consider profit sharing, stock options and bonuses as forms of compensation.)

You might think of benefits as being tangible or intangible. The benefits listed previously are tangible benefits. Intangible benefits are less direct, for example, appreciation from a boss, likelihood for promotion, nice office, etc. People sometimes talk of fringe benefits, usually referring to tangible benefits, but sometimes meaning both kinds of benefits.

You might also think of benefits as company-paid and employee-paid. While the company usually pays for most types of benefits (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.

Planning an Employee Benefits Program (Various Perspectives)

Buying an Employee Benefits Program

General Resources

Additional Information About Employee Benefits for Nonprofits

Employee Compensation

Compensation includes topics in regard to wage and/or salary programs and structures, for example, salary ranges for job descriptions, merit-based programs, bonus-based programs, commission-based programs, etc. (Also see the Related Info (including Benefits))

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 example, 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.

Organizations usually associate compensation/pay ranges with job descriptions in the organization. The ranges include the minimum and the maximum amount of money that can be earned per year in that role.

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).

Exempt and Non-Exempt

Jobs in organizations have two classifications, exempt and non-exempt.

Professional, management and other types of skilled jobs are classified as exempt. Exempt jobs get a salary, that is, a fixed amount of money per time interval, usually a fixed amount per month. It’s not uncommon for exempt positions to receive higher compensation and benefits than non-exempt jobs, although non-exempt jobs often can make more money than exempt jobs simply by working more hours.

Unskilled or entry-level jobs are usually classified as non-exempt. Non-exempt jobs usually get a wage, or an amount of money per hour. Non-exempt jobs also get paid over-time, that is, extra pay for hours worked over 40 hours a week or on certain days of the week or on holidays.

Each job must have the same pay range for anyone performing that job, that is, one person can’t have a higher maximum pay than someone else doing that same job.

General Resources About Compensation

Also consider
Rewarding Employees

Salary Surveys

It is extremely useful to reference salary surveys when determining salaries. The surveys lend tremendous credibility and fairness to the process of determining compensation. Be sure that surveys are somewhat current. Reference them to find the salaries for the job roles that are the closest match to the roles you are deciding the compensation for. The closer you can match the role to the type of services, locale and job title of the role you are deciding compensation for, the more useful the survey is likely to be to you, especially if the survey was generated in the past five years or less.

Sites With Salary Survey Information

Information Technology Compensation

For the Category of Human Resources:

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