What does remuneration mean?

Remuneration refers to the total compensation someone receives in exchange for their work. It also includes nonfinancial benefits, such as mobile phones, company cars, travel allowances and free or discounted food and drinks.

These are the three categories of employment-related remuneration:

• Fixed remuneration: This category is predetermined and generally remains consistent unless the employee’s compensation changes. For example, a customer service manager may earn $60,000 per year in fixed remuneration. They earn this amount regardless of performance.
• Variable remuneration: This is based on the work an employee performs. Sales representatives often earn a commission on each sale they make. This is a type of variable remuneration because the amount due depends on sales volume.
• Incidental remuneration: This includes occasional payments outside an employee’s regular pay, such as a one-time signing bonus.

As an employer, you may want to consider individual performance, market conditions, job duties and skills when setting remuneration. It may be helpful to create a list of criteria so that everyone involved in remuneration decisions considers the same factors.

How does remuneration work?

You can generally build your own remuneration system and compensation strategy, but consider consulting an attorney before setting wages and offering other types of pay to account for applicable local, state and federal laws. For example, the United States Equal Employment Opportunity Commission (EEOC) explains that federal law prohibits employment discrimination based on certain protected characteristics, including:

• Race
• Color
• National origin
• Religion
• Sex (including sexual orientation, transgender status and pregnancy)
• Age (40 or older)
• Disability
• Genetic information

Financial forms of remuneration

Direct financial remuneration includes monetary payments to employees, such as base salary, hourly wages, commissions and bonuses. Indirect financial remuneration includes benefits with monetary value, such as health insurance and employer retirement contributions.

Base salary

Base salary is the fixed amount of compensation an employee receives before commissions, bonuses, overtime pay and other forms of remuneration. It generally remains consistent across pay periods.

For example, a salaried employee earning $55,000 per year may work 38 hours one week and 42 hours the next without their base salary changing.

Wages

Wages are usually expressed as an hourly rate, a daily rate or an amount paid per task. Hourly rates are the most common, but employers may use daily rates for actors, seasonal workers or freelancers. Task-based pay may be appropriate if you can easily determine when someone completes a task.

Overtime pay

In the U.S., some employees may qualify for overtime pay when they work more than a specified number of hours. Under federal law, eligible employees generally receive at least 1.5 times their regular rate of pay for hours worked over 40 in a workweek.

Overtime pay is a form of variable remuneration because the amount depends on hours worked. An employee might earn two hours of overtime one week and five hours the next.

Commissions

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

Tips

Customers usually provide tips to employees for good service. Some employers pool tips and distribute them among team members, while others allow employees to keep the tips they receive. Employers’ obligations regarding tips and minimum wages vary by applicable law.

Holiday bonuses

A holiday bonus is an additional payment that companies may give employees, often 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 salary band or job performance.

For example, you might want to give a $500 bonus to every employee, or you could offer bonuses ranging from $250 to $1,000 based on job title or department.

Cash incentives

Cash incentives encourage employees to meet or exceed their goals. Depending on the performance targets, you can offer cash incentives to an individual, team, department or your entire company. Here are some examples of how you might use cash incentives to reward employees:

• Give spot bonuses to employees who worked extra hours to complete a difficult project.
• Offer a referral bonus for recommending a new employee.
• Issue cash stipends to help remote employees buy treadmills, yoga mats or other items that support employee wellbeing.
• Subsidize commuting expenses, such as public transportation passes or parking fees.

Expense account funds

Employees typically use expense account funds for travel, food and entertainment. For instance, a sales representative might use their expense account to take a client to dinner and discuss the benefits of your company’s products and services.

You can issue funds before they’re needed or have employees submit requests for reimbursement. Advancing funds lets team members participate in business activities without paying the costs themselves first.

The reimbursement method can help track expenses by having a bookkeeper or accounting professional verify that submitted receipts are business-related.

Profit-sharing

Profit-sharing involves paying employees a certain percentage of your quarterly or annual earnings. For instance, you might want to offer 2% of your annual earnings to reward team members for their contributions. Profit-sharing amounts are based on the company’s performance, so you can give smaller bonuses if your company is going through a financial transition.

Other forms of remuneration

Employee remuneration also includes other forms of equity-based and nonfinancial compensation, such as:

• Stock options
• Paid time off
• Health insurance benefits
• Deferred compensation, including certain retirement benefits
• Gym memberships

How remuneration affects taxes

Determining the value of an employee’s base pay, cash incentives and bonuses is usually straightforward, but calculating the value of noncash benefits can be more challenging. The Internal Revenue Service (IRS) offers a Fringe Benefit Guide to help you understand the tax treatment of employee benefits.

If you have questions about tax withholding, consider consulting a tax professional who can review your situation and explain relevant filing and compliance requirements.