Amazing Kids! Magazine

Types of Employee Benefits

By Fatima Yousuf, Money Smarts Editor and Contributing Writer


Whether you decide to start a new business or work as employee for an existing one, understanding how organization compensate, or pay, their employees is important for your own personal success and the success of your company.

Compensation is simply a payment for goods or services during a period of employment. If an employee performs their job and their duties, they typically receive some form of compensation in exchange for their work. When working for a company, an employee’s form of compensation can be either direct or indirect.

There are many different types of direct compensation. However, in simple terms, direct compensation can defined as a monetary payment for work done by an employee. Typically, direct compensation comes in the form of money. The two most common forms of direct compensation for work are salaries and wages.

A salary is a set amount of money paid to an employee during a period of time. This means that, regardless of how many hours an employee works, they will receive the same amount of money during that period of time. On the other hand, wages are another form of direct compensation where employees are paid based on the amount of time that they work. For example, an engineer that works for a salary will be paid the exact same amount of money every year, regardless of how many hours he or she works. On the other had, a pilot that works for wages will only be paid based on the number of airplane flights he or she pilots, not the number of days of employment. There is a critical difference between the two types of direct compensation, and understanding both can help you determine how to budget your money and your time when you are older.

However, not all compensation comes in the form of money. Indirect compensation refers to any non-monetary benefit that an employee receives for performing or exceeding their duties. In more simple terms, indirect compensation is any kind of payment that is not money. While there are a variety of different forms of indirect compensation, two of the more common forms of indirect compensation are protections and paid leave.

Protections are benefits offered to employees that help protect their living situation and their families. For example, pension plans are managed by employers and offer employees and retirement plan for when they are no longer working. Employers can also offer to pay for an employee’s health and dental costs, depending on the company and their policies. Paid leave refers to a company allowing employees to take a break from their regular work hours to either care for family or go on vacation. Your parents may have even take a paid leave from their company in the past when you have gone on vacation!

All these benefits and forms of employee compensation and critical when hiring people for your business or when planning your career as an employee. Understanding the various forms of benefits employees can receive will help you better organize your expenses and offer a clearer vision for your future.