What Is Remuneration? - What to Know

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Sometimes it can be really easy to conflate or confuse one word with another. And the word "remuneration" is a prime example...

Some take it to mean wages, and in truth sometimes an employee's remuneration is just their wages. However, remuneration is something of an umbrella term, and it refers to all the financial compensation provided to an employee in exchange for their services. 

This does include their standard wages, but it can often include other things besides.

In this article, we're going to explain what exactly is meant by remuneration by covering all the different types of financial compensation that fall under this umbrella term. Then we're going to cover what affects how remuneration is calculated, different ways it can be calculated, and remuneration on the profit and loss sheet.

(Please feel free to scroll ahead to any section that jumps out at you.) Here goes.

Also read: Do Part Time Employees Get Benefits? 

Table Of Contents
 

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Types Of Financial Compensation

There are many ways that employers pay their employees. Some of these methods are:

Salary - This is the most common form of payment. It can be paid on a weekly basis or on a monthly basis, so long as it is regular. Salaries are typically determined based on experience, education, and/or qualifications.

Commission - An employer pays an employee a commission when they sell products or services to customers. For instance, if your boss sells insurance, he might pay you a percentage of the sales price as a commission.

Bonus - An additional amount of money that is given to employees as part of their salary. Bonuses are generally offered at the end of each financial year. They may also be given as a reward for meeting certain performance targets.

Employee Stock Ownership - Employees who work for companies with stock options have the option to buy shares in those companies after working there for a set period of time. The more successful the company becomes, the higher the value of the shares will become.

Lump Sum Payment - A lump sum payment is essentially a bonus, except instead of being paid monthly, it is paid up front. This could be because they want to give their employees some extra cash right away as a welcome gift. 

Profit Sharing - Companies use profit sharing to encourage their employees to do better. If the company makes more than expected, then the profits from that excess are shared among the employees.

Dividends - Dividend payments occur when a company has earned enough money to cover its expenses. These dividends are distributed to shareholders, which can sometimes include company employees.

Pension Plan - A retirement plan where employees contribute some portion of their income towards their own retirement. The employer contributes the rest.

Vacation Pay - Employees can get paid for time off work. Vacations are typically taken during holidays.

Sick Leave - Employees can get paid when they are sick. Usually, this is done through a payroll deduction system.

Health Insurance - Employers provide health insurance for their employees. This can include a whole host of things, such as medical coverage, dental care, vision care, etc.

Other Benefits - These benefits are not necessarily monetary. For instance, an employer might offer an extra day off to their employees every week, or flexible working. Or maybe they'll give them a discount on lunch or free car parking arrangements.

Also read: Welcome a New Member to the Team 

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What Can Affect How Remuneration Is Calculated?

The way that remuneration is calculated depends on the type of employment contract that exists between the two parties. There are three main types of contracts:

Fixed Term Contract - This means that the contract lasts for a fixed length of time. After that time, the relationship ends. For example, if you're hired by a company to work for one month, then you'll receive one month's worth of remuneration. At the end of the month, you'll no longer be employed by that company and so won't receive any further compensation.

Permanent Contract - This means that you're hired permanently. For example, if your boss hires you to work for her company on an ongoing basis, and there is no official leaving date. You will receive remuneration until you either leave the company or retire.

Independent Contractor - This means that you are self-employed. You are responsible for all aspects of running your business. Your employer only provides you with an opportunity to make money. Independent contractors are effectively subcontractors. They may receive remuneration from another organization, such as a retainer, as well as internally.

Also read: Skill Assessment is Important During Hiring the Process


 

Different Ways That Employers Can Calculate Remuneration

In addition, there are different ways that employers calculate remuneration. Some companies pay salaries based on how much an employee earns each year. Others pay bonuses based on the amount of revenue that the company generates over the course of a year. And still others pay bonuses based on how well the company performs over a certain period of time.

Also read: 7 Employee Benefits and Compensation Ideas 

 

Remuneration On The Profit And Loss Sheet

Remuneration often appears on the profit and loss (P&L) sheet. In fact, many businesses use P&L sheets to determine how much to pay their employees.

If your company is making a lot in the way of profit, and losing very little in the way of expenses, and has little debt and plenty of cash in the bank, then this means that they can afford to be more generous with the employee remuneration.

However, when assessing the business performance in this way, it is important for employers to include all the types of financial compensation offered to their employers, rather than just salary or wage alone.

Also read: How to Engage Employees

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Final Thoughts

This was mentioned earlier, but it bears repeating here. Remuneration refers to all the financial compensation provided to an employee in exchange for their services, including not only their wages, but also any commission that they earn, any bonuses, any pension plan the company pays into, any Golden Hellos, any paid leave, any health insurance package they're offered, and so on.

How much remuneration to pay an employee depends on a variety of different factors, including their value as an employee, and the financial health of the organization.

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What Is Remuneration? - What to Know
James Wilson

After graduating from McCombs School of Business in Texas, James joined ThePayStubs as a CPA to make sure the numbers we provide our clients are corre... Read More

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