What does remuneration mean?

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.

There are three categories of employment-related remuneration :

• Fixed remuneration is predetermined and won’t change, regardless of circumstances. For example, a customer service clerk who makes $60,000 per year.
• Variable remuneration is based on the work that is performed. For example, a sales representative who can generate $1 million in sales.
• Incidental remuneration isn’t tied to specific tasks or responsibilities, so even those without formal employment agreements can be eligible. For example, an independent contractor who receives reimbursement for travel expenses.

How does remuneration work?

Businesses can generally create their own remuneration systems, as long as they follow federal and state rules. They can also change their compensation policies whenever they wish.

Some companies operate a simple salary-only system, while others also offer bonuses and incentives. Most state laws don’t limit an employer’s freedom to create its own payment schemes, as long as all employees receive at least the indicated minimum wage or another agreed-upon minimum.

However, employers must comply with federal laws regarding equal pay. The United States Equal Employment Opportunity Commission (EEOC) prohibits discriminatory employment practices against protected classes, such as race or ethnicity; religion; sex, which includes pregnancy; national origin; age; disability or genetic characteristics.

State laws may cover additional protected classes of employees. In California, for example, an employer cannot pay a different rate for the same job if the employee is based in another geographical location. The state also prohibits employers from paying lower wages to employees who work at night or work more than eight hours in a day.

Financial forms of remuneration

The type of cash reward an employer provides is determined by their employees’ roles and responsibilities. Financial remuneration includes the following forms of payment:

Base salary

Base salary is the amount of compensation employers pay employees before any additional performance bonuses or commissions. An exempt employee’s salary covers their regular work and doesn’t increase when they work more than hours in a week,unless their employer decides otherwise.

Related:Hourly to Salary Calculator for Employers

Wages

Wages are the compensation employers pay their employees in exchange for work. This payment can be either a fixed amount per task or an hourly or daily rate. Employers typically pay wages to nonexempt employees, who also receive overtime pay at one-and-a-half times their wage rate.

Commissions

A commission is a payment made for specific services rendered or products sold. Employers usually offer commissions to sales professionals as an incentive or reward for meeting performance targets.

Tips

Employers may offer tips to their employees as a reward for providing good service or performing a job well. Customers typically pay these cash bonuses voluntarily, and the employer only steps in if the customer doesn’t tip. Some employers pool tips and later distribute them equitably among team members.

Holiday bonuses

A holiday bonus is a financial gift that companies typically give employees at the end of the year. Some employers give holiday bonuses based on individual employee performance, while others give a flat amount to all employees, regardless of their salary or performance.

Cash incentives

Cash incentives are a type of bonus compensation that encourages employees to meet or exceed set goals. Depending on the performance target(s), you can offer cash incentives to a specific individual, team, department or even your entire company.

Expense account funds

Employees typically use expense account funds for travel, food and entertainment during business trips. If you supply the money for expense account funds before your employee departs, these funds are usually called an advance.

Dividends

A dividend refers to the distribution of a company’s profits to its shareholders. Companies use dividends to distribute money back to investors. They’re often paid quarterly.

Related:What is Competitive Pay?

Other forms of remuneration

Employee remuneration also includes other forms of nonfinancial compensation, such as:

• Stock options
• Unemployment benefits
• Workers’ compensation
• Paid time off
• Health insurance benefits
• Deferred compensation, such as retirement plans
• Gym memberships

How remuneration affects taxes

With the exception of health insurance, all types of remuneration are taxable. While determining the value of an employee’s base pay, cash incentives and bonuses is usually straightforward, it can be challenging to calculate the value of noncash benefits. The Internal Revenue Service (IRS) offers a Fringe Benefit Guide to help you understand the value of nonfinancial benefits.

Anything that an employee receives in the form of compensation is taxable, so you may be required to withhold taxes and report the value on the employee’s W-2 form. A certifiedtax professionalcan help you understand how to pay and report remuneration for your employees.

FAQs about remuneration

The answers to the following frequently asked questions can help you understand more about employee remuneration.

What is the difference between salary and remuneration?

A salary refers to the financial compensation an employee receives for completing work or providing services for their employer. Salary doesn’t include sales commissions, bonuses or nonfinancial benefits.

Related:How to Set Employee Salaries

What is executive remuneration?

Executive remuneration is a remuneration package specifically created for company executives, senior management staff and high-level workers. Salaries, benefits, incentives, insurance policies and so on are included in executive compensation.

What factors affect remuneration policies?

Remuneration is influenced by a number of factors, including the labor market, labor laws, unions, worker efficiency, cost of living, social expectations and the economy. In some countries, employers must offer a minimum level of remuneration in line with existing laws, which may depend on factors, such as the worker’s age or length of service.