Remuneration Meaning Types Remuneration Vs Salary

Remuneration Meaning

The payment can be direct, i.e., fixed or indirect, i.e., variable, depending on the nature of the job, worker abilities, and corporate structure. Companies provide this as a means of motivating employees and increasing productivity. Recompense differs from salary in that the latter is a subset of it and is a fixed and regular payment for services.

Key Takeaways

The remuneration definition describes the total monetary and non-monetary compensation that workers or independent contractors receive for performing services for an organization or firm.The recompense components include base salary, bonuses and incentives, overtime payments, commissions, paid time off, retirement contributions, vacations, and other benefits.It can be direct (fixed) or indirect (variable) based on the nature of the job, employee capabilities, and business structureBusiness StructureBusiness structure is the legal framework adopted by a company to execute business activities in compliance with the corporate rules and regulations. An organization can be a sole proprietorship, partnership, limited liability company or corporation.read more. It differs from salary in the latter is a subset of the former and is offered as a fixed and consistent payment for services.Recompense received is a precondition of work and is an effective means of motivating employees and increasing productivity.

Understanding Remuneration

The remuneration package consists of financial and non-financial perks that a full-time or independent worker gets for their work. It is the precondition of employment and acts as a motivation for employees who desire fair compensation. Thus, companies develop a remuneration policy to reward and motivate their staff to be better and more productive. Also, it let employees know what they can expect from their efforts at work. While some people seek higher monetary compensation, others value non-monetary perks such as paid sick leaves, holidays, use of business assets, etc.

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Recompense can either be direct (fixed) or indirect (variable). Direct compensation includes any cash payments made to employees, such as wages, salary, bonuses, incentives, commissions, etc. Indirect compensation includes rewards like overtime pay, contributions to retirement plans, travel packages, flexible work hours, food, lodging, and business transportation, among other things.

When the demand for skilled workers is more than the supply, the recompense automatically increases to a great extent. That is why some companies propose lavish packages with better compensation and more benefits – a tactic called golden hello – to recruit desirable candidates.

The remuneration for employment may include base salary, bonuses, allowances, expense accounts, and other financial benefits. Some companies offer deserving candidates stock optionsStock OptionsStock options are derivative instruments that give the holder the right to buy or sell any stock at a predetermined price regardless of the prevailing market prices. It typically consists of four components: the strike price, the expiry date, the lot size, and the share premium.read more as part of the recompense if their business model allows.

The National Council on Compensation Insurance (NCCI) establishes some guidelines for determining what qualifies as recompense and what does not in the context of workers’ compensationWorkers’ CompensationWorkers compensation is the insurance against the workplace injury, and it covers the damage due to injury by providing monetary benefits to the employee for medical expenses, disability benefits. Thus, it saves the interest of both the parties, the employer and the employee.read more insurance. According to the Internal Revenue Service, wages, allowances, and other perks provided as recompense are taxable.

Remuneration Factors

The remuneration policy for a worker depends on the value they add to the organization. In short, employee productivity is an essential consideration before finalizing the recompense. Besides, several other factors determine its components, including:

Skills in demandJob rolesEmployment status (full time, part-time, or independent)Job position (executive-level or entry-level)Business modelRegional economy

Types of Remuneration

As previously stated, there are two types of remuneration – direct (fixed) and indirect (variable):

Direct Remuneration

#1 – Salary

Most workers do not even think beyond salary when it comes to the recompense offered to them. For them, recompense means salary, and hence salary is the most common form of direct compensation. Companies consider the value an employee can bring to the role before deciding the salary.

Thus, the salary becomes a fixed reward for employees, and they work hard to receive a raise either quarterly, annually, or even earlier in some cases. Salaries are represented in annual terms and are payable during paid time off, holidays, and vacations.

#2 – Wages

These are payments provided to employees on an hourly or daily basis. Wages are another type of direct compensation, and workers are eligible for overtime pay for working extra hours.

#3 – Commissions

This payment structure is quite common in sales and brokerage. Salespeople usually receive a portion of sales revenueSales RevenueSales revenue refers to the income generated by any business entity by selling its goods or providing its services during the normal course of its operations. It is reported annually, quarterly or monthly as the case may be in the business entity’s income statement/profit & loss account.read more as a commission for closing the deal. Similarly, brokers get a percentage of the purchase price as commission for assisting the owner with selling their property.

#4 -Bonuses & Incentives

Some businesses reward their employees based on their performance or project completion or holidays or on making a profit. Those who perform well receive hefty bonuses, and hence these are another form of direct compensation for individuals. For example, when sales and marketing executives achieve their targets, they get incentives. It can be paid either in cash or as gifts.

Indirect Remuneration

#1 – Overtime Payments

Employees or individuals working beyond their usual working hours receive monetary incentives.

#2 – Retirement Benefits

Employees receive a regular, fixed monthly income or salary, but most companies secure their future after retirement by offering monetary benefits. Thus, if individuals retire from their jobs, they get paid for their long-term services to their employers.

#3 – Flexible Work Hours

Providing flexible working hours to workers and employees might result in increased productivity. It, thus, adds more value to the company output. Most importantly, employees feel valued this way, which is more than any monetary reward they would ever receive.

#4 – Social Benefits

Health insurance coverage, restaurant checks, gym memberships, Social Security, Medicare, the use of company assets (such as mobile or car), housing, meals, store credits, etc., are some of the benefits that organizations offer to their employees.

Remuneration vs Salary

People sometimes interchange the phrases recompense and salary. There are a few differences between the two, though.

While remuneration is the total compensation that an employee receives, salary is one of its components. Employees or workers receive recompense in exchange for their services, but salary indicates a level of professionalism.Recompense is a broader term that includes everything from basic salary to bonuses to other benefits, etc. On the other hand, salary is a subset of this.Recompense can be direct or indirect, while salary is a fixed and regular payment for services.The word remuneration finds its origin in the Latin term, ‘remuneration,’ meaning ‘reward’ or ‘repayment.’ Salary is the term derived yet again from the Latin word ‘salarie,’ which means ‘salt money.’