What Are The Different Types Of Employee Compensations?

When setting up a payroll policy on their payroll management system, an organization must clearly define its compensation structure. There are various types of compensation, and organizations can combine these to create a structure aligned with their policies and employee employment contracts.

• Annual Compensation/Salary: Most Indian organizations follow an annual salary structure where compensation is determined by the value of contributions rather than hours worked. In other words, employees on annual salaries are not paid overtime for work beyond their standard daily or weekly hours, based on the assumption that they will work the necessary time to fulfil their job responsibilities.

• Hourly Compensation/Salary: In certain industries like transportation, restaurants, retail, and hotels, employees are typically paid on an hourly basis. They usually work 8 to 10 hours per day and are compensated for the exact number of hours worked.

• Overtime Pay: Overtime pay is provided to hourly wage employees who work beyond their standard work hours of 8 or 10 hours per day or 40 hours per week. They receive additional compensation for each hour worked beyond the regular schedule.

• Incentives and Bonuses: Both bonuses and incentives are considered compensation as they are offered in exchange for an employee's contributions to the company. Both are given to employees in recognition of exceptional performance beyond expectations.

• Retirement Benefits: Retirement benefits often involve a mutually agreed upon contribution scheme where both the employer and employee contribute a specific amount each month towards a lump sum payment to be received by the employee upon retirement.

• Increments: Organizations typically offer annual salary increments based on a percentage of an employee's current salary. Both salaried and hourly employees are eligible for salary increases based on individual or team performance.