Total cash compensation is the amount of earned cash, bonuses, and variable pay given to an employee and included in their total income. An employee’s total cash compensation becomes part of their total compensation, which includes additional non-cash benefits or long-term benefits.
1. Salary
Salary is a fixed amount of money an employee earns, usually calculated annually and divided to pay consistent amounts during each pay period. For example, a worker with a $52,000 salary who gets paid bi-weekly earns $2,000 per pay period ($52,000 / 26 weeks).
Salary does not include other forms of pay, like overtime pay, tips, or commission. Instead, a salaried worker has a base salary and may have additional forms of pay included on their paychecks and totaled in their total cash compensation and total compensation packages.
Salaried workers are also referred to as exempt workers because they do not qualify for overtime pay and aren’t required to work a specific number of hours to receive their salaries.
2. Wage
Wages is a fixed payment paid for a specified timeframe. Usually, wages are based on an hourly rate, but some workers are paid a daily or weekly wage. Someone making $25 per hour working 40 hours per week earns $1,000. Meanwhile, some companies might instead pay $125 per day, equaling the same amount for five days of work per week.
In contrast to a salaried worker, employees earning a wage are also known as non-exempt workers. This means that they can qualify for overtime pay and minimum wage.
3. Overtime Pay
Overtime pay is a form of cash compensation paid to workers who work more than their usual number of hours they’re required to work. Usually, employees earning wages who work over 40 hours qualify for overtime pay. However, salaried and other exempt workers cannot qualify for this type of compensation.
The Fair Labor Standards Act (FLSA) requires employers to pay qualifying employees at least one and a half times their usual pay rate when earning overtime pay.
4. Hazard Pay
Employers pay hazard pay to workers who perform dangerous or hazardous tasks that could result in health problems, injury, or even death. Hazard pay can also be given to employees who must complete tasks that could take a toll on their mental health.
For example, the FLSA did not require employers to pay workers hazard pay during the COVID-19 pandemic. However, many in the healthcare industry did, as nurses and other healthcare workers remained on the front line to care for patients, putting their health at risk.
5. Commission
Commission is a payment sales-focused employees receive. For example, someone who sells commercial vehicle fleets to organizations might earn 25% commission on the deal. Some workers earn only commission rather than salary, also known as straight commission.
There are several types of commission that employers might offer employees. The following are the most common:
- Revenue commission: Revenue commission is based on the amount of revenue a salesperson generates, usually offered as a percentage of that revenue. For example, an employee who earns 10% commission gets $500 for generating $5,000 in revenue.
- Gross margin commission: This commission is similar to revenue commission in that it depends on how much a salesperson sells. However, it also considers the expenses that went into making that sale. Say the same $5,000 sale had $1,000 in expenses. The same employee earning 10% gross margin commission on that sale will earn $400, as the gross revenue equaled $4,000.
- Tiered commission: As the name suggests, this commission places commission percentages in different tiers. As a person sells more, they can reach higher tiers with higher commissions. For example, sales up to $250,000 might warrant a 5% commission, but $500,000 in sales could give an employee 8% commission.
- Residual commission: Residual commission pays salespeople continued commission for clients or accounts they hold onto. As an example, a salesperson might get 3% in continuous residual commission for monthly or annual subscriptions they sold.
6. Tips
Tips are paid by customers to reward workers for their performance. For example, restaurant servers, bartenders, and delivery drivers typically earn tips for their service to patrons. Other service workers may also earn tips, like lawyers and photographers. Although tips don’t count as salary, they are reported as income on an employee’s paycheck.
7. Incentive Bonus
An incentive bonus is money an employee earns in addition to their regular salary as a reward for their performance. Teams might also earn incentive bonuses for their performance overall, splitting the bonus among team members.
Here are a few examples to illustrate when workers might earn these performance-based bonuses:
- A salesperson meets their sales goal in terms of revenue for the quarter
- An employee closes deals with an above-average number of clients for the month
- A marketing team generates 1.5 times the revenue they set as their goal for a new ad campaign
- A website designer’s changes to a company website’s landing pages results in 30% more leads
- An employee’s proposal was a hit with stakeholders
Not all incentive bonuses are paid as cash, however. Some employees may receive other forms of incentive bonuses, like wellness reimbursements, professional development tools or programs, or new equipment. Only bonuses with monetary value may be included in total cash compensation.
8. Discretionary Bonus
A discretionary bonus is a bonus given to an employee at the employer’s discretion. In other words, the employee doesn’t need to meet any requirements to receive the bonus, such as meeting a goal or going above and beyond their usual responsibilities.
Discretionary bonuses might be given to employees when employers have extra room in their payroll budget, for example.
9. Sign-On Bonus
Some employers pay new hires a sign-on bonus when signing with the company. These bonuses are designed to attract qualified candidates to open positions. Usually, the employee receives the sign-on bonus as soon as they become official employees with the company.
According to CNBC, 5.2% of all job postings offered some form of a sign-on bonus in July 2022.
10. Referral Bonus
A referral bonus is given to employees who refer qualified candidates to an open position within their company. This is usually paid as a flat amount per qualifying referral. Some companies may pay a referral bonus for all qualified referrals, while others pay only when a referral gets hired.
11. Per Diem
Per diem is an allowance given to employees to cover their expenses for work-related travel. It differs from travel reimbursement in that it goes directly to the employee to pay for their travel expenses rather than paying for an employee’s hotel and other expenses up front or reimbursing those charges after a trip.
For example, an employer might pay a worker $2,000 per diem for a weekend hotel stay, flight, meals, and tickets for a professional development and networking conference.
Federal per diem rates vary by location and serve as a guide for employers. Employers may pay more than federal rates to employees, but the excess portion paid may be taxable for the worker.
12. Relocation Expenses
Companies can choose to pay workers some or all of their relocation expenses if they move for work. An employee moving from Ohio to Florida to begin working in a new office for their company might have their travel expenses and apartment deposit paid by the company, for example.
Any relocation expenses paid from January 1st, 2018, through 2025 must be included as income for the employee, making the benefit taxable.
13. Stipends
A stipend is money paid to someone who performs unpaid work for a company. An employee completing duties that are outside of their usual responsibilities might receive a stipend as a reward for their extra work. Stipends can also be paid to employees completing professional development for which they wouldn’t be paid otherwise.
How is Total Cash Compensation Different from Total Compensation?
Total cash compensation is part of total compensation, which is all the monetary and non-monetary benefits an employee receives. Meanwhile, total cash compensation only includes monetary benefits, like wages, tips, salary, and commission.
Non-cash benefits that are part of total compensation in addition to total cash compensation may include retirement plans, profit-sharing plans, health insurance, and childcare reimbursement. Gym or wellness benefits, company equipment, and company vehicles also fall under the total compensation umbrella but are not types of total cash compensation.
It’s also important to note that many forms of total compensation have monetary value but don’t qualify as total cash compensation.
For example, paid vacation has monetary value because when you take a paid vacation, you get reimbursed for that time. However, that payment wasn’t paid as a result of work, as is the case for total cash compensation, like hazard pay, incentive bonuses, and salary.
When designing total compensation packages, consider the total cash compensation you offer, as these pay types translate directly into money in an employee’s bank account.
