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Monetary Compensation: Definition & Concept

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  • 0:01 What Is Monetary Compensation?
  • 1:03 Types of Monetary Compensation
  • 4:03 Other Compensation
  • 4:26 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
There are various means of monetary compensation. In this lesson, you'll learn the different types of monetary compensation and how each works. You'll also have an opportunity to take a short quiz after the lesson.

What Is Monetary Compensation?

Your best friend Taylor is working several different jobs to try to make ends meet. She's paid $.05 a word for writing social media posts for an online news service. Sometimes she puts in a few hours at a high-end jewelry store, where she makes a commission on every sale. Then, on weekends, she's a server at a diner a few blocks from her apartment. While she makes an hourly wage from the owner, the real money as a server is in the tips, which she receives as cash from the customers. As you can imagine, she always dreads putting together the numbers during tax season!

Although her jobs are very different, in every situation, Taylor receives some form of monetary compensation. Monetary compensation, in the context of employment, is money paid to an employee in exchange for the use of the employee's labor, as opposed to non-monetary compensation such as health insurance. There are several different ways an employer can structure monetary compensation. Many of these forms of compensation can be used together.

Types of Monetary Compensation

Taylor receives at least four different types of monetary compensation. Let's discuss these, as well as other types of monetary compensation, in more detail.

You can be paid a wage for your work. A wage is a certain amount of money paid per unit of time worked. Employees, like servers and retail workers, are usually paid an hourly wage. In fact, as you probably know, the federal government sets a minimum wage that most employers must pay most employees.

If you are compensated by a wage and work more than a set number of hours in a set period of time as defined by relevant law, you will be entitled to an overtime wage, which is a wage greater than the regular wage you are paid, for those additional hours. Law often sets the minimum overtime wage rate. For example, for every hour you work over 40 hours per workweek, you will be compensated one-and-a-half times your regular wage rate. If your wage rate is $10 an hour, your overtime wage rate is $15 an hour.

If you are paid a salary, you are being paid a fixed amount of compensation for a fixed period of time. Unlike wage employees, salaried employees are typically not entitled to overtime pay. For example, you may be paid an annual wage of $60,000 payable in 12 monthly installments. No matter how many hours you work each month, whether it's 160 or 220, you will only be paid $5,000 dollars a month.

Some employees are compensated by commission. Commission is a percentage of the revenue from sales of products or services you make. For example, Taylor is paid five percent of the value of each jewelry sale she makes. So on a necklace with a retail value of $500, Taylor's commission is $25. You may be paid solely through commission, like most real estate agents, or you may have a base salary or wage in addition to the commission.

Some employees are paid a piece work rate, which is a fixed amount of money paid for each unit or action performed regardless of the time it takes. For example, writers may be paid by the word and seamstresses by the garment.

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