HR Compensation & Benefits: Definition & Policies

Lesson Transcript
Instructor: Sherri Nash

Sherri’s teaching includes middle school through college. Degrees include bachelor’s marketing education, master’s adult education and doctorate in curriculum instruction.

Employee compensation and benefit opportunities should be communicated through company policies. These policies define compensation for financial and non-monetary benefits, identify the value for the employee, and comply with legal requirements.

Compensation & Benefit Policies

Companies provide a variety of compensation and benefits to employees for performing their jobs. These compensation and benefit strategies should be clearly defined and communicated to employees within the employee handbook or company policies and procedure manual.

Assume you are the compensation and benefits manager at Synergy Corporation. You are responsible for researching, developing, communicating, and continuously evaluating the company compensation and benefit policies. These policies should provide employees with clearly defined and equitable strategies.

They should also define company compensation and benefit opportunities. The policies should comply with legal and tax requirements for compensation and benefits. Additionally they should communicate the value of the benefits to current employees as well as in recruiting future employees.

You decide to update Synergy Corporation's employee handbook to highlight details on compensation and benefits available for employees. You explore direct financial monetary wages, indirect financial compensation, and benefits for use in developing effective company policies.

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Defining Financial Compensation

Employees receive direct financial compensation, or monetary compensation, as wages in paychecks as well as indirect financial compensation for their work at a company. Monetary compensation strategies as well as policy and compliance considerations are identified as follows:

In regards to salary, it is important to identify salary ranges and the pay increase process for specific job descriptions, in order to communicate how the employee is paid and how he/she can advance personal income. Documentation can demonstrate compliance with the United States Department of Labor non-discrimination and equal employment opportunity laws. Additionally, it is important to document the payment schedule, for example, weekly or bi-monthly paychecks, to inform employees on how they will be paid.

In regards to hourly wages, assure the hourly wage meets or exceeds the state minimum wage requirement as designated in the Fair Labor Standards Act (FLSA). Also, be sure to comply with FLSA to pay hourly employees time and one half of their rate of pay for overtime hours. Document the payment schedule for hourly workers as well, for example, weekly or bi-monthly paychecks, to inform employees on how they will be paid. For cost of living increase, define how the company increases the percentage of salary or hourly wages based on increases in cost of living. Regarding commissions, establish how commissions are earned for those employees that are paid based on sales incentives. For bonuses and incentives, communicate bonus or incentive additions to pay. Examples include sign-on for new employees, performance pay based on criteria, and company stock options for sharing profits.

The United States Internal Revenue Service (IRS) and state tax departments require taxes to be paid on monetary compensation received by employees in the year the money was earned. As the compensation and benefits manager, you will also need to identify the indirect financial compensation available for your employees.

These are strategies that do not directly add monetary value to the paycheck. These strategies are defined, and policy and compliance considerations are identified as follows:

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