Comp & Benefits Flashcards
What is Compensation and Benefits?
Compensation and benefits is a branch of human resources that deals with the payment of employees and the provision of benefits. It includes the process of determining how much an employee should be paid and deciding what benefits should be offered.
Compensation vs. Benefits
Compensation is a financial form of remuneration, while benefits are non-financial. Compensation includes wages and salaries, while benefits include things like health insurance, vacation time, and pension plans.
What are the objectives of compensation management?
Attract, engage, and retain talent
Motivate employees
Boost employee morale
Maintain compliance with compensation laws
Reflect the current labor market
Compensation
Compensation is the money an employee receives in exchange for their labor, which could be a salary, wages, commission, and bonuses. This money is subject to taxation.
Benefits
Benefits are extra perks or rewards that an organization provides to an employee. This includes health insurance, stock options, gym memberships, flexible working hours, “summer Fridays,” learning and development opportunities, and retirement savings plans.
Direct compensation
Direct compensation is the financial compensation, or cash, given from the employer to the employee for their services (e.g., base pay, overtime pay, variable and sales compensation).
Base pay
The fixed financial amount that an organization pays its employees in exchange for the services they perform (i.e., annual or monthly salary and hourly rate).
Overtime pay
The amount of extra pay an employee receives for working extra hours on top of their scheduled contract hours.
Variable compensation
Compensation that is awarded to an employee that has gone above and beyond their regular job requirements. Variable pay is determined both by an employee’s performance and the organization’s performance and is typically awarded on top of the employee’s fixed pay (e.g., performance or referral bonus.
Sales compensation
A sales compensation strategy is often used to motivate a sales team to achieve its goals. It will typically comprise a base salary and be topped up with commissions, bonuses, and other performance-based incentives. The base salary will often be minimal, while the commissions and bonuses are lucrative.
Indirect compensation
Monetary and non-monetary incentives given to an employee to increase their overall engagement and motivation at work.
Equity
Company offered shares of stock or the option to buy shares.
Stock options
An employee is entitled to purchase a number of shares in the company at a fixed price after working for the company for a set period (typically three to five years).
Nonexempt employee
employee who is not exempt from the overtime provisions of the FLSA. All nonexempt employees, then, are entitled to be paid at least the legal minimum wage and overtime pay for any hours they work beyond the first 40 work hours of any given week. Overtime pay is equal to 1.5 times their usual pay rate.
Nonexempt employee classification
Generally paid an hourly rate
Qualify for overtime pay
Earn at least the federal minimum wage
Are directly supervised
Exempt employee classification
Are not entitled to overtime pay
Are not required to work a certain number of hours
Must fulfill certain job duties
Are always salaried (rather than paid hourly)
Must be paid at least $684 per week
Fair Labor Standards Act (FLSA)
Active legislation governing nonexempt employees’ employment and rights. It lays out the federal laws regarding minimum wage, overtime pay, and other aspects of employment compliance that employers must observe.
FLSA minimum wage requirement
federal minimum wage amount, an amount that must be met or exceeded by employers for their nonexempt employees. The federal minimum wage established by the FLSA is $7.25 per hour. States have a right to establish minimum wage requirements for nonexempt employees that may exceed the federal minimum wage. If and when this occurs, businesses in that state must comply with the higher amount
FLSA record keeping requirements
Tracking nonexempt employees hours worked
Employee’s basic information (including SSN and address)
Official time and day of workweek beginning
Hours worked each day and week
Basis of pay and hourly rate
Straight-time earnings (either daily or weekly)
Overtime earnings for each week
Other additions or deductions from the employee’s pay
Dates of payments and pay periods
Non-monetary incentives
experiential rewards, time to work on self-determined projects, additional time off, flexible working, extra opportunities for development, wellness programs, restaurant vouchers, free snacks or meals at the office, and branded merchandise.
Total compensation
combination of direct and indirect forms of compensation, which is then presented to an employee as part of their contract.
Discretionary benefits
benefits not mandated by law that companies use to attract and retain talent (e.g., tuition assistance, mental health benefits, flexible work arrangements)
Legally required benefits
Benefits mandated by law in a specific jurisdiction (e.g., works comp or unemployment insurance, FMLA protections)
4 benefit categories
Benefits at work
Benefits for health
Benefits for financial security
Lifestyle benefits
Benefits at work
Flexible working hours, paid time off, leave, skills development, food and beverages, skills developments, gift & activities
Benefits for health
Insurance for medical, pharmacy, dental plans, and vision; wellness incentives (e.g., therapy)
Benefits for financial security
Retirement and pension plans (401k matching); life insurance; equity; earned wage access; financial literacy courses
Lifestyle benefits
remote work, commuter benefits (public transport subsidy), work-life balance(e.g., onsite childcare)
Salary range penetration
salary compared to the entire pay range
Compa ratio
compares an individual’s or group’s salary with the midpoint of a defined salary range. This metric shows you whether an employee, or group of employees, are paid below or above market rates.
Range spread
range of pay used to compensate an employee for their services.
Range maximum
highest rate an employer is willing to pay someone for a particular role.
Total rewards
a package of all the benefits, incentives, perks, processes, programs, and more that an employer offers to its employees.
Gross wages
the taxable compensation earned by an employee before tax and other deductions are removed from the paycheck.
Net pay
take-home pay, is the income an employee receives after voluntary or mandatory benefits and taxes are deducted.
Fixed pay
the fixed amount paid to an employee at the end of each payroll cycle, regardless of the hours worked or level of work completed. This is typically a monthly salary
Differential pay
compensation paid to an employee for working beyond their contracted hours or for taking on additional work.
Bi-weekly pay
a payment method where employees receive their compensation every two weeks (14 days), which results in approximately 26 payouts each year.
Monthly pay period
refers to when a company pays employees once each month (typically on the last day or last Friday of the month), which results in 12 paychecks each year.
Merit increase
increase in salary awarded to an employee for good performance or some other form of achievement.
Broadbanding
consolidates a range of similar job classifications into one single pay band.
Gainsharing
where employees receive a financial share of the profit a company gains due to the performance improvement an employee helped to design.
Total target cash
the total value of all cash-based compensation an employee receives if they achieve the results expected of them. This includes their annual base salary and target performance-based bonus.
Pay mix
ratio of fixed pay to variable pay in the compensation an employee receives.
