Employers have several options for paying their employees, including using the standard base salary or wage structures. Some companies might use multiple compensation types for all workers, while others might use specific types for some roles and not others.
Compensation types for U.S. employees are classified as direct or indirect. Direct compensation is offered directly to the employee as pay, such as salary, wages, or bonuses. Indirect compensation has monetary value but isn’t paid directly as cash, such as paid leave, insurance, or stock options.
The following list includes all direct and indirect compensation types for U.S. workers.
Allowances are direct forms of compensation paid in addition to wages or a base salary. Businesses often use allowances when employees are required to travel or complete other nonstandard duties for work that their regular pay doesn’t account for. Many types of allowances exist, including:
- Housing: Pay for an employee’s housing near work or temporary housing for a work project. Some employers also pay a moving allowance to help bridge the costs of relocating for work.
- Clothing: An allowance for professional attire. A company might offer an annual clothing allowance to executives, for example.
- Travel: Pay for an employee to travel for work, which might include airfare, meals, housing, conference fees, etc. This allowance is also referred to as per diem.
- Equipment: Reimbursement or money upfront to pay for office equipment used in a worker’s on-site or remote office, like a computer, printer, or phone system.
Bonuses are additional forms of pay beyond salary and wages, usually gifted to workers who meet goals or performance objectives. For example, an employee receiving an excellent performance review might receive a cash bonus. Bonuses can also be non-cash gifts, like sporting event tickets, a travel voucher, or a week of flexible working hours.
Performance-based individual bonuses are the most common form of variable pay—pay in addition to base compensation—in the workplace, according to a 2019 PayScale report.
3. Base Salary
Base salary is the pay a worker earns without additional pay, like bonuses, commissions, or tips, added. It also doesn’t include any deductions, like taxes or retirement plan contributions.
Usually, a base salary is provided annually, and that salary is split into pay periods to calculate an employee’s paycheck. For example, if Bill earns $72,000 a year as his base salary, his bi-weekly pay would reflect that $72,000 divided by 26 pay periods, or about $2,769.
4. Childcare Benefits
Childcare benefits help employees balance work and childcare. Some companies provide in-house childcare for their employees’ children while they work, while others offer stipends to offset some of the costs of childcare. Usually, these benefits are available for workers with children under school age, but some organizations may also assist with after-school care.
Commission is pay beyond wages or salary based on an employee’s sales. Some organizations pay sales-focused employees just commission rather than wages or a salary.
Several types of commission structures exist, such as revenue, gross margin, residual, and straight commission.
6. Differential Pay
Differential pay rewards employees with additional pay for working hours or days outside of their usual schedule, like weekends, extended evening hours, or holidays. An employee working extra hours to cover for another employee who’s on vacation for a week might receive differential pay from their company.
7. Draw-Against Commission
This structure gives employees an advance payment on their commission, drawing against their commission bank for previously earned commission. Draw-against commission allows commission-based employees to earn a more reliable salary.
8. Equity Shares
Equity shares give employees part ownership in the company they work with. Usually, employees must remain with the company for a specific amount of time before their equity shares hold any value, encouraging longevity and, therefore, reduced turnover.
9. Gross Margin Commission
This commission structure gives employees a commission percentage based on the gross profit of a sale. If Bill has a $5,000 sale with $500 in expenses, the gross profit is $4,500. Bill would earn $225 with his 5% commission rate.
10. Hazard Pay
Hazard pay is a type of differential pay given to employees who take part in hazardous or abnormally challenging work. For instance, many frontline workers received hazard pay throughout the COVID-19 pandemic to acknowledge and reward their increased responsibilities and efforts.
11. Holiday Pay
Holiday pay is differential pay that rewards employees for working holidays. As an example, a company might pay time and a half for customer service employees electing to work on Independence Day.
Insurance is a non-monetary compensation type that’s one of the most sought-after employee benefits. Insurance benefits can include life, short-term disability, long-term disability, and medical insurance.
Many organizations offering any type of insurance benefits usually require employees to pay at least a portion of their premiums. However, some organizations cover the full cost of these benefits.
13. Multiplier Commission
Multiplier commission pays a percentage according to how close an employee is to reaching their quota, which may depend on several metrics. Say Bill earns 80% of his commission rate of 5%, or 4%, for reaching 80% of his quota. However, he earns 100% of his regular commission rate if he reaches 90%-100% of his quota.
14. Overtime Pay
Overtime pay rewards employees for working additional hours beyond what they’re required to do. An employee called in to work Saturday when they usually have weekends off might earn time and a half or double pay for their clocked hours on Saturday.
15. Paid Leave
Paid leave refers to the time an employee takes off that’s compensated at their same rate of pay.
The most common type of paid leave is family leave, which allows employees to take time off to have or care for a new baby, care for a sick child or spouse, or care for themselves if they’re sick or injured. The Family and Medical Leave Act provides 12 weeks of unpaid family leave to most employees, but employers can also choose to pay workers for some or all of that time.
Bereavement leave is another form of paid leave that gives employees time off to grieve for a loved one, make final arrangements, or attend a funeral or ceremony. Some companies also pay for leave related to jury duty.
16. Paid Sick Time
Paid sick time is a form of paid time off employees can use when they’re sick and can’t attend work. Sick time might also be used when an employee has medical appointments or is undergoing a medical procedure or hospitalization.
No federal laws mandate that companies pay sick time, but several states have enacted PTO laws that organizations in those states must follow.
17. Paid Vacation
Paid vacation is company-paid time an employee takes off work. Like sick time, vacation time is usually accrued over a period or given to employees at the beginning of the year.
Some companies put all paid time off into a single bucket for employees to use as they please. Here at StonePress, we offer three weeks of paid time off annually, given at the beginning of the year.
18. Performance-Based Pay
Performance-based pay awards employees for their performance. This pay is in addition to salary or wages and can be in the form of a bonus, commissions, tips, or non-monetary gifts, like travel vouchers or gift cards.
Piecework is paid by unit and is commonly used for independent contractors more than employees. However, media agencies sometimes use this practice, paying journalists per article or interview or photographers per photo created for a magazine. Piecework is paid at a fixed rate rather than considering the time the task takes to complete.
20. Residual Commission
Residual commission continues to pay employees commissions from the ongoing sales they’ve generated. If Bill’s sale of a subscription service continues to generate the company $1,000 per month in revenue, he might earn a residual commission each month that subscription remains active.
21. Retirement Contributions
Companies can sponsor retirement plans for workers, for which they contribute money toward the retirement plan each pay period. Employers might offer a percentage of the employee’s pay as a company contribution or match some or all of the employee’s contribution for each pay period.
22. Revenue Commission
Revenue commission is based on the revenue an employee generates for their company with a sale. If Bill is on a 5% commission rate and gets a sale generating $5,000 in revenue, Bill earns $250.
23. Savings Annuities
Savings annuities are usually thought of as retirement plans, like a 401(k), which continue to build value over time with regular contributions. Retirement plans are examples of annuities, but employers can also offer annuities for other reasons.
For example, some employers offer long-term care annuities, which can help employees build savings for long-term care, should they need it in the future. A Medicaid-compliant annuity allows workers with a Medicaid-eligible spouse to build a savings fund that does not work against Medicaid eligibility. The healthy spouse can continue to grow the fund into retirement for supplemental income.
24. Stock Options
Stock options allow employees to buy or sell shares of their company within a specified timeframe. Employees who buy stock options generally hope to sell the stocks at a later date to earn a profit. However, some stock options are subject to alternative minimum tax.
25. Straight Commission
This is usually a flat-rate commission that occurs when an employee makes a sale. For example, Bill generates a commission of $200 for every sale. Two sales in one pay period gives Bill $400 in commissions for that pay period.
This type of commission is usually best for companies with sales that don’t vary much in value, like an office cleaning company running on a subscription model. For every office that signs up on a base plan, Bill might earn $200. However, if Bill signs up a customer on a premium plan, he might earn $400 in straight commission.
26. Student Loan Repayment
Companies can offer to pay some or all of an employee’s student loans. This happens more often for employees who received a degree relevant to their current position or completed a degree or certification at the request of their employer. Companies can pay any amount they’d like toward student loans, but up to $5,250 is allowable tax-free.
27. Tiered Commission
Tiered commission provides different levels of percentages based on a sales amount. For example, sales up to $5,000 might result in a 5% commission, but sales up to $10,000 increase the commission rate to 8%.
Tips are a form of performance-based pay paid by clients or customers. Restaurant service workers frequently earn tips from customers, but lawyers, house cleaners, taxi drivers, delivery drivers, babysitters, tour guides, and numerous other professionals also receive them.
29. Tuition Reimbursement
Tuition reimbursement pays some or all of the costs of attending school for a certificate, degree, or training related to a worker’s job. This compensation type can encourage workers to keep advancing their skills affordably.
Many colleges and universities work directly with employers to make the tuition payment process easier for students.
Wages are fixed base payments made to an employee. Non-salaried employees usually earn hourly wages that are paid weekly, bi-weekly, or monthly. As of June 2023, the average hourly rate for private employees in the United States is $33.58.
What Compensation Types Should I Offer?
Business operations, revenue, and employee types are some of the driving factors behind the compensation types a company offers. It’s crucial to consider what your specific employees look for and need most when determining the best compensation for them.
Don’t forget, too, that compensation packages can vary by role. For example, executives might earn bonuses and paid time off that new hires don’t receive. However, entry-level candidates might prioritize compensation like student loan repayment, tuition reimbursement, and overtime pay.
Take a look at the types of compensation you currently offer and ask yourself:
- Are they truly serving my employees’ needs?
- Are they cutting into profits too much?
- Could we be offering more to workers?
- Do these compensation types help draw in and retain talent?
Use your answers to these questions to determine whether your current compensation plans could be improved by adding or swapping compensation types that align better with your workers’ needs.