Organizations that wish to compensate their employees fairly must first understand the various types of compensation and how to design attractive compensation packages for their personnel. Let’s dive into the many sorts of payment that businesses might provide.

What exactly is compensation?

Compensation is any payment made by an employer to an employee throughout their job. The employee will contribute their time, labor, and expertise in exchange.

This remuneration can shape a salary, pay, benefits, bonuses, paid time off, pension funds, stock options, and other forms. Compensation is also known as remuneration outside the United States and Canada.

Understanding the various types of compensation is essential for designing an appealing compensation package for your present staff. This will help you retain top talent, but it will also help you recruit new talent to your organization—as long as you differentiate yourself from the competition.

There are two sorts of compensation: financial and non-financial.

  • Direct recompense (financial)
  • Indirect remuneration (financial & non-financial)

Everyone involved in developing an employee compensation plan and pay structure must first comprehend the various types of compensation. This is why it is the business’s responsibility to explain the payment plan to all candidates and workers. It is hugely significant throughout the hiring process and during performance and salary evaluations. Employees can quickly become perplexed with so many varied alternatives available under the primary two forms of payment which fall under types of direct tax.

Direct recompense

Direct compensation is a monetary (or financial) kind of remuneration. The major types of direct compensation are as follows:


  • Unskilled, semi-skilled, temporary, part-time, or contract workers are frequently paid hourly for their time and labor.
  • Retail, hospitality, and construction are examples of industries where certain employees are paid hourly.
  • Overtime pay is frequently available to employees paid on an hourly basis. This remuneration is made up of any extra hours worked outside the scope of their contract.
  • Salary Annual salaries are often offered to the majority of full-time or skilled employees and those in management roles. Pay frequently signifies that the organization has invested long-term in this individual.

Indirect remuneration

Indirect compensation is still a form of financial compensation because it has a monetary value. Employees, on the other hand, do not receive it in cash. As a result, some types of indirect remuneration are considered economical, while others are deemed non-monetary. This varies significantly amongst groups. Health insurance, life insurance, retirement plans, disability insurance, legal insurance, and pet insurance are expected employee benefits.

Total monetary compensation

An employee’s total compensation comprises a compensation package that includes all of the categories mentioned above of payment. Total remuneration can (and frequently will) include different awards and benefits at different employment levels.

Employees benefit from a total compensation statement. They have a clear understanding of all they are entitled to from the outset and the many sorts of compensation available. Splitting base pay, incentives, and commissions, for example, will assist employees in understanding what they are automatically entitled to and what they must accomplish targets to get. This was in brief about Bonus. To know more about, 87a rebate, click here.


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