Do you understand the difference between compensation and benefits so that you can give your employees competitive total compensation packages? Many employers are confused about how to offer the right benefits to attract and retain talent and how to seamlessly integrate benefits into their payroll. Let’s take a look at benefits and compensation, how they differ, and how they work together as a total compensation package.
Understanding Employee Compensation
Employee compensation, often referred to as total remuneration, is the value of everything the employee receives for the work they perform. This includes their base salary and any benefits and perks they receive, like healthcare, PTO, bonuses, student loan assistance, and retirement plans or pensions. Having a great total remuneration package can help motivate your employees to come to work, increase employee morale, and contribute to a positive company culture.
Understanding Base Pay
Your employees' base pay is the dollar amount that they are paid for their work. For example, if you pay your employee $50,000 a year, and they receive a check for $961.58 a week, that’s their base pay and what they use to pay for their daily expenses, like housing, utilities, and food.
Understanding Commissions
If your business is primarily sales, you may pay your employees either partially or fully with commissions. This type of monetary compensation allows your employees to earn a certain percentage of money based on each sale they complete. For example, if your employee is directly responsible for $30,000 in sales each week, and they earn 10 percent commission, they’d receive $3,000.
Understanding Bonuses
Bonuses are not considered part of the base pay, but it is a monetary award that is taxed. Bonuses can be given to show appreciation for meeting sales goals, going above and beyond, and as a token of appreciation at the end of the year.
Understanding Employee Benefits
Benefits are not considered part of the base pay, and they are not monetary. However, they do comprise the other half of your employee’s total compensation package. Benefits can include health insurance, pet insurance, commuting benefits, family benefits, PTO, student loan assistance, and retirement plans and packages.
Understanding Employee Perks
You may also include certain perks in your total employee compensation packages. The perks you offer your employees might include things like free lunches or a lunch stipend, Internet discounts or stipends, gym memberships or discounts on the products or services your business offers, and discounts on services or products from local businesses.
How to Calculate Employee Benefits Value
As an employer, you’ll want to calculate the total value of your employee compensation packages. To accomplish this, you’ll need to assign a dollar value to all the benefits and perks that you offer, even if they’re not considered monetary compensation.
For example, let’s say that you pay your employee $50,000 a year as a salary. Then, you also offer health insurance with vision and dental, a discounted gym membership, 20 days of PTO, and free lunches during the employee’s shift.
- Salary - $50,000 per year
- Health Insurance – Employers pay an average of $6,500 per year for each employee
- 20 Days of PTO - $50,000/2080*8*20 = $3,846
- Gym Discount - $300, assuming a $25 a month discount
- Free Lunches - $5,200, assuming 260 workdays at $20 a lunch
- Retirement Package – 3.4 percent ($1,700) of the employee’s compensation.
The total compensation package for this hypothetical employee is $67,546. That includes their base salary and all the benefits that are offered to them during the year. Offering a generous compensation package can entice employees to apply for jobs at your company, and it can help retain them for the long term, especially if you offer good retirement packages.
Integrating Benefits into Payroll with Help from Workforce PayHub
It’s important to understand that the benefits you offer your employees are a critical part of your total remuneration and a key incentive to attract and retain top talent so that you can increase your business’s profitability and productivity. At Workforce PayHub we can help you with benefits administration. We can help you with benefits enrollment and eligibility as well as with getting your employees’ information to the benefits providers.
If you need help or are confused about how to seamlessly integrate your employee benefits into your payroll, let Workforce PayHub help you. Reach out today for specialized solutions that can streamline your payroll and benefits packages by calling us at 517-759-4026.
