A total compensation statement outlines the direct and indirect compensation you pay employees for the work they do.
It’s a way of showing your team members the prices they don’t usually see, like how much you pay toward their health insurance premiums. Or the total dollar amount you contribute to their 401(k).
Employers who provide total comp statements usually prepare and distribute them to each employee once a year. They might sound like they take forever to put together, but they’re actually pretty simple.
You don’t need a fancy template to create a total compensation statement. Just stick to the facts, list them out for your employees in plain English, and you’re done.
It’s really that easy.
Put All of This in a Total Compensation Statement
The building blocks of a total compensation statement are simple. You’ll need to include an employee’s base salary or wage, any other forms of direct pay, and the cost you take on for the benefits and perks.
We’re going to show you a list of the things you can consider putting in a total comp statement. But it comes with a caveat. If you list every single expense that your team might possibly benefit from, you could invite criticism from employees.
Including the price of coffee, office snacks, and toilet paper on everyone’s total comp statement might look like you’re trying to show employees how much of a burden it is to employ them.
Plus, some of them might not even drink the coffee or eat the snacks.
So make sure that each item you put on a total comp statement reflects that employee’s relevant total compensation alone.
Here’s what we recommend you include:
- Salary or hourly wages
- Overtime pay
- Pay differentials
- Cost-of-living adjustments
- 401(k) matching contributions
- Social Security tax
- Unemployment tax
- Worker’s Compensation insurance
- Health insurance
- Life insurance
- Vision insurance
- Dental insurance
- Disability insurance
- PTO (for hourly employees)
- Educational/professional development assistance
- Relocation expenses
- Childcare allowance/assistance
- Paid new-parent leave
- Discounted or free meals
- Health Savings Account (HSA) contributions
As you can probably tell, all of these items won’t apply for every employee. One employee might be taking professional development courses but have fully grown children. She’ll need the educational assistance but not the childcare benefit.
Another employee might have three young kids at home. He doesn’t have time to take classes right now—but he definitely needs that childcare allowance.
You might also pay benefits that aren’t on this list. Some total compensation statements include things like parking discounts for big-city workers. Or free stock shares that give employees equity in your company.
Rarer perks include things like fertility assistance, subsidized pet insurance, stipends for co-working spaces, house cleaning stipends, and elder care assistance.
Include items that are relevant to each employee and show them how much you value their labor. This is the purpose of a total compensation statement, after all. You’re not trying to show them how expensive they are to employ.
Leave All This Out of a Total Compensation Statement
Aside from the price of minuscule items like snacks and coffee, what else should you leave out of a total compensation statement?
No, really. These are some of the things we’ve seen on total comp statements:
- Reimbursed expenses
- Employee contributions to healthcare or their 401(k)
- PTO (for salaried employees)
- Incorrect or outdated benefits
A reimbursement means that your employee bought something with their money and you paid them back. It’s not a benefit. It’s a repaid debt.
Employee contributions to healthcare, HSA, 401(k) plans, and other, similar benefits are deductions from their salary or wages. Your contributions are a benefit, not theirs.
PTO is generally fine to include on an hourly employee’s statement, but it’s already included in the annual salary for salaried employees. Including it on their total comp statement is counting the same money twice. If you do include it on a total comp statement, don’t assign a dollar value to it.
And finally, including incorrect or outdated benefits can make employees feel like you’re trying to inflate the statement with imaginary costs.
For instance, let’s say an hourly employee named Barbara adopted a child in 2021 and received 12 weeks of paid parental leave at the start of the year. In 2022, the child goes to daycare, so Barbara takes advantage of her employer’s childcare allowance. But she doesn’t take any paid parental leave.
She gets her total compensation statement at the end of 2022. Her employer’s HR team reused the templates they made last year. In their rush to get the statements completed for every employee, they forgot to delete the paid parental leave from Barbara’s statement.
Barbara feels a flash of annoyance when she opens her statement. Both the childcare allowance she’s currently using and the paid leave from 2021 are on her 2022 statement. She feels like her employer is trying to make her seem expensive for having a kid.
Even innocent mistakes like these can turn things sour.
Be very careful to make sure your HR and management team takes the time to do the statements correctly. Make it clear to your employees that they can come to you with questions if they see anything that doesn’t make sense.
Above all, emphasize that the reason you want them to see these statements is so that they can see the full value of their labor.
Tips for Total Compensation Statements
We’ve got four key tips to help you create the perfect total compensation statement.
1. Make It Easy to Read
Keep things simple, clean, and easy for the eye to take in. Employees should be able to scan the statement to get an idea of what their total compensation was for the year. It should look polished, but there’s no need to add excessive color or design.
Besides, that stuff takes extra time. Instead of focusing on design and formatting, focus on the data you’re presenting.
If you do want to organize your template just a little, group types of compensation logically. This is especially important if you offer many paid benefits. You could have one section each for direct and indirect compensation, for example, and list the relevant benefits beneath these.
At the end of the statement, provide the sum total of the employee’s indirect and direct compensation.
2. Don’t Add Complexity
If you love to explain things or write long memos, now is the time to hold yourself back. A single sentence to explain the purpose of the document is fine, but skip any preamble and get right to the numbers.
Pie charts and bar graphs are unnecessary—and they’re a waste of time for total compensation statements. Remember, it’s all about the numbers.
3. Get the Numbers Right
Employees do not like it when they believe there is a discrepancy in pay.
In addition, employees can and probably will compare their total compensation statements with their colleagues. These are both reasons why it’s so important that you avoid making mistakes on a total compensation statement.
Harness all the energy in you that wants to create pie charts and cool graphics. Rein it in. And then use it to put all your focus into the numbers.
4. Prepare Managers for Discussion
Even if each total compensation statement you give out is flawless, your employees will have questions and reactions. Prepare your managers to handle these conversations.
For example, you could set aside time the following workday for employees to meet with their managers to ask any questions they have. Pass a sign-up sheet around after you hand out total compensation statements so that employees can schedule a meeting for the next day.
And if you’re lagging the market in terms of paying people, you might want to think twice about whether you’re ready to provide a total compensation statement. It might be time to take a good, hard look at your operating budget and payroll budget to see where you could improve.
When Your Compensation Package Isn’t Enough
There are three key questions to ask yourself when you’re trying to figure out whether the total compensation you offer is enough:
- Do I feel hesitant to put out total compensation statements because of pay gaps or lower-than-average compensation?
- Does my HR team struggle to find high-quality applicants for open positions?
- Does more than 10% of your workforce leave for a new job each year, indicating high turnover?
If you answered yes to any of these questions, it’s time to reassess your compensation package.