Direct Compensation | Allowances, Reimbursements, & More

What Does Direct Compensation Include?

What Does Direct Compensation Include? Payroll Tutorial

The monetary benefit offered by an organization to its employees in return for their service is called direct compensation. This includes an employee’s base pay (hourly wage or annual salary), performance-based variable pay, bonuses (rewards for special occasions or exceptional performance) as well as stock options (a right to purchase a part of business as a reward for exceptional service).

Types of direct compensation

Some of the key components of direct compensation are discussed below.

Salary and wage

Direct compensation includes basic annual salaries or hourly wages paid to workers in return for their services to the company account. It refers to the monetary benefits received for work done for a specific duration like an hour, a week, a month or a year. It includes workers’ financial compensation payments, contractual payments, pay for unscheduled time, and overtime, as well as any retroactive pay.

Car allowance

Companies may offer their employees the use of a car and/or a fuel allowance. They may also cover the cost of parking, public transportation, or cab fare for the employee.

Housing allowance

If workers have to relocate because of work, companies may provide their workers with a housing allowance. Some companies even provide accommodation to facilitate the process of relocation.

Medical reimbursement

Companies may offer workers medical reimbursements for medical claims covering not only workers themselves, but also their family members. The claims include reimbursement for medical bills as well as health insurance.

Leave travel allowance

Some organizations provide their employees with leave and an allowance for recreational travel. These allowances are scaled based on the employee position and length of service with the company.

Special/Other allowance

Direct compensation also covers some special allowances. These include meals, commissions, mobile phone expenses, travel expenses, club memberships, insurance, reduced interest loans, and more.

Other direct compensation options include incentive pay linked to exceptional performance and occasional bonuses for special occasions. For insight into incentive compensation, please refer to the SHRM (Society for Human Resource Management).

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