What is the difference between employee compensation and employee benefits?



What is the difference between employee compensation and employee benefits?


Compensation is a monetary or non-monetary consideration given by an employer to an employee for his or her work in the organization. Compensation is pre-agreed rumination and part of CTC, and the organization can change the structure over time.

Employee compensation can either be in the form:

  • Basic pay, allowances, incentives, bonus, etc- Direct part
  • Pension, Insurance, PF, etc- Indirect part

Key Features of Employee Compensation:

  1. Compensation paid is either fully taxable or partial exempt
  2. The main purpose is to attract and retain the new talent
  3. Compensation can be either in cash or in kind
  4. Compensation is performance-based- either individual or organizational. Employees are paid a bonus for their performance

Employee Benefits:

A benefit is either non-monetary or sometimes cash reimbursements (for health checks, gym memberships, trips, mobile reimbursements, etc.) given to an employee by an employer to motivate him or her to do better. It is given in addition to the basic pay with the intention of motivating the employees. Sometimes benefits depend on one’s role or level in the organization.

It can be:

  • Reward/m-real coupons
  • Laptop/cell phone
  • Leaves
  • Life/health insurance
  • Memberships
  • Educational allowances, etc.

Key features of Employee Benefits:

  1. Usually helps to retain employees
  2. The main purpose is to motivate employees to do better
  3. The elements are exempt/ partially exempt from tax
  4. Offred on top of the cash pay
  5. Benefits are not performance-based. Employees are entitled to benefits regardless of their performance

In a nutshell, compensation, and benefit though serve somewhat the same function, are different yet important for the welfare of employees. In order to know the exact CTC (Cost to company), an employee must talk to HR and know about the compensation and benefits paid.

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Susheel Agarwal

Susheel is the CEO of Ethika Insurance Broking P Ltd. This company, which has a current value of 10 million dollars, was bootstrapped by him and two of his friends. He attributes his success to his ability to inspire others to seek happiness at work.