What is indirect compensation?

Indirect compensation  refers to various types of non-monetary payments made to employees.

What is the difference between direct and indirect compensation?

Direct compensation  is the cash pay employees receive. It includes the employee's hourly wage or base salary as well as applicable commissions, tips, and bonuses. Direct compensation is the most commonly recognized form of payment.

In contrast, indirect compensation refers to other types of compensation that employers may offer besides cash. Indirect compensation typically includes health insurance and retirement plans that may affect an employee's take-home pay (e.g., an employee's  401(k)  contributions). Companies may offer other  fringe benefits  that will not affect an employee's pay such as meals, paid parking, gift cards, and more.

What are other examples of indirect compensation?

In addition to the above, other forms of indirect compensation may include:

• Insurance
• Equity programs (stock options, profit sharing, etc.)
• Pension Plans
• tuition reimbursement
• paid leave
• Paid  medical  , family, and  parental leave
• Adoption and Child Care Assistance
• Benefits of commuting
• Company cell phones and laptops

Why is indirect compensation important?

The main objectives of indirect compensation are:

1. Attract top talent . 68% of job seekers prioritize benefits offerings  when considering a potential employer.   If a candidate has two job offers with the same salary, a benefits package that takes into account their overall needs will be the deciding factor.
2. Boost employee morale  . Sometimes tough days at work are inevitable.  Indirect compensation that promotes work-life balance, such as gym memberships, pet-friendly offices, and online therapy  , can help keep your team's morale high, even during challenging times.
3. Improve retention.  When employees feel valued as a whole person beyond the work they do for the company, they are more likely to stay. For large companies, advertising for open positions as well as training and onboarding new employees   can cost $1 trillion . Therefore, employee retention is critical to the productivity, quality, and profitability of a business.

How can indirect compensation be implemented successfully?

To strategically design an indirect compensation package, employers should:

1. Do this intentionally.  When it comes to indirect compensation, the possibilities are endless. Make sure you tailor your benefits to the needs of your specific employee population and the values ​​of your organization.
2. Standardize benefits.  Comparing your indirect compensation with other organizations' offerings   helps you stay informed and competitive . You'll stand out among candidates while keeping your existing employees happy.
3. Empower your managers.  Provide them with information that helps them answer employees' questions about the organization's compensation plan. This transparency can help build trust with employees.
4. Educate candidates and employees. Creating  a total  compensation statement  is a straightforward way to let candidates and employees know what benefits they can enjoy and how to take advantage of them. For indirect compensation, list the value of each benefit or the amount the employer contributes.