Shawn has a masters of public administration, JD, and a BA in political science.
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.
Sometimes an employer will offer a bonus, or additional compensation to employees if they meet certain goals. A bonus may be a predetermined fixed amount or based on a graduated scale. For example, an employee may receive a $100 bonus for each ten units he produces above his production goal each month.
Many service employees rely primarily on tips, a gratuity received directly from the customer, for the bulk of their compensation even though they are usually paid a small base wage. Somewhat interestingly, the employer does not provide the majority of the compensation in this framework. The employer's customers who receive the service from the employee provide it. A serious problem with tipping is that it's a voluntary form of payment. Nothing prevents a customer from failing to compensate the employee for the services rendered. Servers are classic examples of employees who earn most of their monetary compensation through tipping.
Of course, an employer may also offer non-monetary compensation in exchange for the use of the employee's labor. These are often referred to as benefits and refer to things like health insurance coverage, sick leave, childcare, or retirement matching. While these benefits do have a value, they do not consist of money given to the employee and are therefore considered non-monetary.
Monetary compensation is money paid to an employee in exchange for the employee's labor. There are many different ways to structure monetary compensation. Common forms of monetary compensation include wages, overtime wages, salary, piece work rate, commission, bonus, and tips. These forms can be used together, such as an employee being paid a wage, an overtime wage, and a bonus.
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