The attrition rate depicts employee satisfaction with a company; the higher the rate, the less the employee satisfaction. There are multiple ways that companies follow to retain their employees and make them feel connected with them. One of the most important factors is employee compensation basics and facilities that influence employee’s job switch decisions. 

Employee compensation is more than just a paycheck, it is the overall cost that a company provides to its employees in exchange for their services. Compensation not only includes direct monetary benefits but also non-monetary facilities that help employees have additional benefits, like insurance. Let’s take a look at the major details related to employee compensation and its components.  

What is Employee Compensation?

You must have heard the popular HR term, CTC or Cost to Company multiple times. The simple meaning of this term is the annual cost that a company bears for a specific employee, including monetary or non-monetary benefits, i.e., employee compensation basics. It is the total annual package that an employee receives in terms of the services provided. 

The scale of employee compensation depends on the company policy and its scalability. For instance, most early-age startup businesses only provide monetary benefits, including monthly payouts, and no perks. On the contrary, well-established companies provide more than just monetary benefits, like insurance, perks, etc., that enhance the overall well-being of employees. Therefore, it becomes important to analyze companies’ employee compensation before joining them.

Components of Employee Compensation

Let’s understand its components before diving into the importance of cloud based payroll software and its effectiveness in HR processes.

Direct Compensation

It is the basic component that every company is liable to provide to its employees on specific dates. Direct compensation simply means the desired monetary value that employees receive in exchange for providing value to their related profiles. The tenure of monetary compensation depends on the contract with employees, for instance, companies majorly prefer paying out on a monthly basis. On the other hand, some companies outsource freelancers on a contractual basis on a daily, weekly, or monthly basis. There are many factors that affect the base monetary pay of employee compensation basics, some of those are-

1) Company’s Budget

Every work designation is different from another, considering the departments, employee position & experience. Specific work domains and profiles have varied budgets allotted by companies. Therefore, the decided company’s budget for work profiles impacts the base monetary pay for that profile. 

2) Employee Skills & Experience 

Another important factor to consider is employee skill set & experience. The relevant skills and experience for a specific work domain determine the base monetary pay/ salary. Freshers and beginners have lower base salaries compared to experienced ones in the same niche. This pay is often calculated using smart attendance management system software like Kasturi HR. 

3) Job Market

The job market for specific work domains determines the base pay. Companies usually follow the standard pay that the market currently offers to employees, considering their skill sets, work experience, and work domain. However, a few of the companies provide more than the market standard in rare scenarios, like when employees have good negotiation or presentation skills. 

4) Overtime Pay

Many companies provide additional remuneration to employees when they do overtime when required. It motivates employees to perform well and make more than their base salary. The accurate calculations of overtime pay is done through effective and smart cloud based payroll software that covers their overtime period and accurately calculates their claim request. 

6) Incentives

Last on the list is the incentives, other than overtime pay, that employees receive in exchange for their extraordinary work done. For instance, sales personnel meet standard targets and often generate more revenue or convert leads for companies, which makes them earn more than their base salary, known as incentives. Mostly business development work domains offer incentives to employees, encouraging them to do more work and earn better. 

Indirect Compensation

Employee benefits, like perks and non-monetary facilities, other than the above-mentioned ones, provide peace of mind to employees and reduce attrition rates. Therefore, employee compensation basics with indirect compensation are of much value and drive productivity and scalability in the long run. These benefits offer more value than just base salary. Here are the major components that come under the “indirect compensation” list. 

7) Insurance

One of the most popular factors is insurance, health/ life, provided to employees. Some companies provide coverage to employee’s families, including spouses and parents. Healthcare facilities are the most important factor for any team member, and getting such benefits reduces financial burdens. As a result, employees tend to opt for companies that offer such a facility.

8) Paid Time Off & Flexible Leave Policy

Rigid employee leave policies along with ones that deduct salaries lead to enhanced attrition rates. On the other hand, flexible leave policies with paid leaves keep employees engaged with companies. Smart attendance management system software makes it easier with flexible leave policies to provide accurate salaries with no deductions.

9) Office Trips

The other perk that attracts potential employees to join companies is timely official trips. For instance, many companies provide free travel trips both, domestic and foreign, to employees. However, it completely depends on companies to continue this facility as per goals achieved and budgets. Well-established companies often provide free & calculated tickets to employees that they can claim. 

10) Flexible Work Timings

Last on the list is flexibility at work timings. Most companies follow a rigid process to maintain their office working hours. Some deduct salaries when employees come late to the office, even after completing standard working hours. Such practices make employees less engaged with the company, leading to early job switches. Thus, flexible timings with no salary deductions also come under the “indirect compensation” list. 

Wrap Up

The blog covers complete details related to employee compensation basics that employees should know before joining any company. However, there could be other factors that determine their direct and indirect compensation. Therefore, it is advisable to go through the complete details before onboarding any company.