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Types of Benefits
Many terms are used to describe benefits, including:
- fringe benefits
- indirect compensation
- pay supplements
- non-wage allowances
- perquisites
- supplementary employee remuneration
- supplementary compensation
- indirect payments
These terms suggest that such rewards are secondary and not a significant part of total compensation. This might have been true at one time, but certainly not so today. Membership rewards were originally called fringe benefits because they were only a small portion of the total compensation package. For the past 40 or more years, the growth of benefits has far exceeded the increase in pay, even during inflationary periods. In fact, the growth of benefits has been 3 times that of direct compensation.
Keep in mind…
When an employee is hired, the cost is much higher than the agreed upon salary.
Mandatory benefits
There are some benefits that are always part of the employment package. These are called mandatory benefits because they are required by law.
Mandatory benefits include:
- Social Security
- Unemployment Insurance
- Workers' Compensation
Some states require additional benefits. For example, California requires disability insurance. These benefits can increase total compensation costs by more than 25%.
Discretionary benefits
Discretionary benefits are so named because the employer can choose whether or not to offer them. These include a wide range of possible benefits.
They can be classified into:
- retirement programs
- health and welfare programs, including: medical, life, disability, and others
- payment for time not worked, including: vacation, sick leave, holidays, and personal leave
- employee services, including: day care, education assistance, and health clubs
Memory Jogger
Note: Memory Jogger questions are not scored. They serve only to help you remember some of the course material covered thus far. You must select the correct answer in order to proceed to the next section.
Which of the following is a discretionary benefit?