What Is Remuneration, And How Does Compensation Work For Employees?
Remuneration is a type of payment or compensation that an employer pays to an individual employee for the latter’s services or the work that the employee did for the organization. The remuneration consists of both the base salary of the employee and other types of payments that are available during the course of work. These include various funds related to expense accounts, stock options, and bonuses.
In this article, you will learn about what remuneration means in the context of business and how this compensation system works for employees. Furthermore, we will also take a look at various types of remunerations that are possible for employees and other workers. Finally, we will share with you how remuneration differs from salary. Hence, to learn more, read on through to the end of the article.
What Is Remuneration?
According to Investopedia,
“Remuneration is the total compensation received by an employee. It includes not only base salary but any bonuses, commission payments, overtime pay, or other financial benefits that an employee receives from an employer. A job perk may or may not be a component of employee remuneration. […] Remuneration may include direct payment of money or taxable fringe benefits such as personal use of a company car.”
If you are an employer, you will need to understand that while you are rewarding your employees, you will need to get to know the various forms of compensation. There are compensations that exist beyond basic pay.
If you put together generous packages full of benefits, these will attract top talents to your organization. Hence, you will need to understand what kind of remuneration can help you to make a good decision on employee compensation.
Remunerations are of three types:
Fixed Remuneration:
The company predetermines it, and this does not change even with circumstances.
Variable Remuneration:
This changes with the work that the employee performs and can increase and decrease with circumstances.
Incidental Remuneration:
This is not related to any responsibility or task. Hence, people who are not associated with formal agreements are eligible for this remuneration.
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Remuneration: How Does It Work For Employees?
According to Indeed.com,
“Remuneration refers to the total compensation someone receives in exchange for their services or work for a company or organization. In addition to pay, it includes an employee’s nonfinancial benefits, such as mobile phones, company cars, travel allowances, and free or discounted food and drinks.”
It depends on the business and what remuneration system it creates, as long as the business is following federal and state rules. The system that the business uses can also change with the compensation policy of the business.
While some companies create a simple system consisting of salaries only, while other companies offer incentives and bonuses. Most state laws in the United States do not limit the freedom of an employer to create payment schemes for employees. This system works provided that all employees of the company receive at least a minimum wage or the minimum amount agreed upon.
Furthermore, employers must also comply with various federal laws related to equal pay. As per the provisions of the US Equal Employment Opportunity Commission (EEOC), there shall be no discrimination in employment practices, especially against protected classes.
Furthermore, in some states, like California, employers cannot pay lower wages to employees who work during the night or the ones who work more than eight hours a day.
What Are The Types Of Remunerations?
According to the Corporate Finance Institute,
“It’s important to note that remuneration values and types will differ depending on an employee’s value to the company. Taking into consideration things like the individual’s employment status (full-time vs. part-time) and whether they are in an executive-level position or are an entry-level member of a company make a significant difference in calculating the final amount.”
- The most common form of remuneration is the salary or wage. Many companies supplement these with bonuses for holidays, performance, or others. There can be extra commissions on extra sales or extra work.
- In many food service and hospitality industries, since the base pay does not meet the minimum wage requirements, many positions rely on tips.
- Remunerations also consist of commissions, overtime payments, benefits, and retirement benefits. There are health insurance benefits and other ones as well.
- A company that wants to attract an individual with some unique skillsets or having a good reputation might offer a ‘golden hello’ remuneration. This acts as a signing bonus for the employee.
- The golden parachute is another type of remuneration that promises a generous payout to the executive in case of termination.
- Deferred compensation is another type of remuneration that the employer sets aside from the employee’s earnings so that the employee can redeem it later.
How Does Remuneration And Salary Differ From Each Other?
Salary is a part of the remuneration that the employee gets, while remuneration might not be a salary in every case. However, for many individuals, salary and remuneration are basically the same. The employees get a flat salary for services or get hourly payments.
However, for other employees, salary is only a part of the total remuneration package. A salesperson might get a small salary but get a large portion of his income through commissions that he made through sales. For example, a stockbroker in Wall Street makes most income from commission through sales of stocks. They make most of their money from bonus payments.
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Final Thoughts
Remuneration is the total amount of money an employee receives as compensation in return for a job. It includes the base salary as well as other forms of financial compensation that the employee is supposed to get. The contribution of the company to the retirement plan is also counted as part of the remuneration package.
At the level of executive, the remuneration consists of the sum total of salary, bonuses, stock shares, and other forms of financial compensation. If an employee is in a service job, then any tips the employee gets are also part of compensation. What do you think of compensation systems in general? Share your thoughts with us in the comments section below.
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soumava goswami
A passionate writer and an avid reader, Soumava is academically inclined and loves writing on topics requiring deep research. Having years of content writing experience, Soumava also loves creating blogs in other domains, including digital marketing, business, technology, travel, and sports.
