Even though there is a difference between total job benefits and total employee compensation, it is common to see the terms used both interchangeably – and incorrectly. It is possible to allow for some overlap in certain areas, but it’s also important for leadership within an organization to understand how they differ. So, what do each of these terms mean, and how do total job benefits and total employee compensation differ from each other?
How total job benefits and total employee compensation differ
To describe how total job benefits and total employee compensation are different, you must first understand the terms individually. We have provided more information on each to help make this happen:
Defining total job benefits
Total job benefits are the wide range of perks and privileges that come with holding a job within an organization.
You might also see them referred to as “fringe benefits” because they are given in addition to compensation (this is especially true for the benefits that are not cash benefits). These benefits are indirect and not necessarily based on an employee’s performance in the workplace (but often will be).
They normally include the following:
- Insurance (medical and health, dental, vision, life, etc.)
- Retirement benefits
- Vehicles and other transport facilities
- Paid time off
- Allowances
- Accommodation
- Travel packages
These are not the only benefits that an organization may choose to give, however. Others may be given as dictated by the organization’s terms of employment or conditions of service. A popular example of this for large organizations is tuition assistance for employees who are planning on furthering their education.
Some job benefits presented are also a legal requirement, including the payment of unemployment benefits, social security, and paid vacation.
Defining employee compensation
Employee compensation refers to the wages or remuneration given to employees for tasks and duties performed as part of their job. It usually comes in the form of financial compensation, such as a paycheck or base salary, and is most often based on the performance of tasks and responsibilities that have been assigned to an employee.
How total job benefits and total employee compensation differ
You will note that from the information provided above, there is potential for overlap in total job benefits and employee compensation. But it is also clear that they refer to two different types and ideas of remuneration – financial and non-financial.
Total job benefits refer to non-financial remuneration, describing all the potential material, opportunity-based, and other provisions and privileges that are afforded to employees by organizations. Meanwhile, total employee compensation describes the financial rewards that are offered to employees by their organizations as a result of the work carried out.
This basic difference may also lead to some other differences based on the purpose of each within an organization. For instance, total employee compensation (when offered competitively) aims to both attract and retain talented employees working within an organization. Meanwhile, total job benefits are normally offered to employees to motivate and boost morale.
The final difference that senior-level management within organizations should always be aware of is the contrast in taxability between total job benefits and total employee compensation.
Total employee compensation, as the money paid for the work you perform, is always subject to tax. Total job benefits, on the other hand, may be exempt or partially exempt from tax, though this depends on what the benefit is.
Employee benefits that are required by law
Some benefits are mandatory by law, even though the definition of the term suggests they are offered by organizations as perks or advantages to working to retain staff. We have briefly explored some of these mandatory benefits below:
Unemployment insurance
By law, employers are required to pay unemployment insurance for their employees. This tax helps to maintain unemployment benefits claimed by an employee if they are terminated from their position.
Social Security, Medicare, and FICA
Both Social Security and Medicare are considered statutory benefits. The Federal Insurance Contributions Act (FICA) is used to fund both Social Security and Medicare programs. These programs provide benefits for retirees, disabled individuals, and children. Legally, both employees and employers are required to contribute to these funds.
Family and Medical Leave Act protections
The Family and Medical Leave Act (FMLA) entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. A covered employer is considered to be a private-sector employer with 50 or more employees, and all public employers.
The FMLA provides eligible employees with up to 12 weeks of unpaid, job-protected leave during 12 months for qualifying family and medical reasons, and to handle qualifying exigencies, as well as up to 26 workweeks of unpaid, job-protected leave in a single 12 months under the Military Caregiver Leave. Qualifying reasons include the birth of a child, dealing with a serious or chronic personal illness, or caring for an immediate family member with a serious or chronic illness.
In addition to benefits under the FMLA, some states and local jurisdictions also require paid/unpaid family leave and/or paid/unpaid sick and safe leave. Because of this, employers must review their obligations under applicable state and local laws.
Disability insurance
This provides partial wage replacement for employees experiencing an illness or injury that requires them to miss more than 1 week of work. It is structured similarly to medical coverage, and employers can choose to cover some or all of the cost of the policy for their employees.
Alternatively, they can also choose to pass the entire cost of the coverage along to the employee through payroll deduction.
While it is not a mandatory federal benefit, disability insurance is one of the legally-required benefits for employers in the following states:
- California
- Hawaii
- New Jersey
- New York
- Rhode Island
Health insurance
Under the Affordable Care Act, applicable large employers (ALEs) risk a potential assessment if they do not offer sufficient and affordable coverage to full-time employees and their dependents and at least one full-time employee receives a premium tax credit.
Workers’ compensation insurance
This provides financial support to individuals unable to work as a result of a workplace injury or illness.
If an employee experiences these as a result of their regular duties while working, states mandate that the employer should be responsible for covering medical bills and a limited amount of income for the employee during their recovery period.
Employers looking to obtain workers’ compensation insurance can typically meet the state requirements in one of two ways. This will either be through state-run insurance (the employer purchases an insurance policy from a state-run program) or through self-insurance (the employer pays for any medical bills and ongoing income directly).