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What is the difference between employee compensation and employee benefits?


Employee compensation and benefits play a vital role in attracting, retaining, and motivating employees. Both seem to serve the same role, however, different in definition and nature. Although intricately woven together, still there is a subtle distinction, so let’s see how compensation is different from benefit!

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

 It can either be in the form:

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

Key features:

  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 kind
  4. Compensation is performance-based- either individual or organizational. Employees are paid a bonus for their performance


The benefit is a non-cash or sometimes cash reimbursements (for health checks, Gym memberships, trips, mobile reimbursements) reward given to an employee by an employer to motivate him/her to do better. It is a given in addition to the basic pay with the thought to secure the employee’s financial security. Sometimes benefits depend on one’s role/level in the organization.

It can be:

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

Key features:

  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.

Susheel Agarwal

Susheel Agarwal

Susheel is a certified Happiness Coach, which enables him to help organizations develop healthy and happy workplaces. Years of extensive in-depth research by interacting with various leaders of happy & not so happy organizations, attending several Happiness and Leadership programs along with his own authentic experiences, Susheel has been successful in establishing a happy workplace. He currently works as a Thought Leader and a Passionate Coach, educating corporate leaders to do the same.

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