Benefits and compensation are both essential aspects of human resource management. They are part of the compensation package that workers receive in exchange for the services they deliver to a business. While people often confuse and use these terms interchangeably, they are distinct since they do not refer to the same thing. The primary distinction between compensation and benefits is monetary value. To help you understand better, here are the differences between compensation and benefits.
Compensation
Compensation is a concept that is intimately associated with the labor market. For example, when there is a labor scarcity in the market, better compensation might make up for it. It has both direct and indirect components. By definition, compensation is the remuneration a worker usually receives from their employer for work, services, and contributions to the organization.
Benefits
Benefits refer to the employee’s non-monetary compensation as part of their basic pay. The other names used to refer to benefits are such as:
- secret payroll
- fringe benefits
- wage supplements
Most business owners and employers provide benefits to their employees as a result of changes in tax regulations.
Distinguishing factors between compensation and benefits
- Nature
Employers compensate their employees in the form of monetary payments. Benefits, on the other hand, are non-monetary kinds of value provided to employees.
- Form of remuneration
Compensation is a type of payment that is directly related to the employee’s performance. For example, it could be on the basis of the following:
- performance of an employee
- performance of the department
- the overall performance of the organization
Benefits are a type of indirect remuneration supplied to employees as part of their working circ*mstances rather than as a result of their performance. Employees must get benefits as members of the organization, regardless of performance.
- Examples
Salary and pay are the most common forms of compensation. On the other hand, benefits include:
- holidays
- insurance plans
- social security benefits
- paid leave
- vacations
- Meaning
Compensation is the monetary recompense provided to employees in exchange for the services they perform for the firm. Benefits, alternatively, are the non-monetary forms of compensation offered to employees. They come in addition to their cash remuneration for the services provided to the firm.
- Purpose
Compensation attracts and retains a competent and talented employee. On the other hand, benefits aim to promote the employees’ well-being. It also motivates them to perform better.
Benefits and compensation might seem related because they both compensate employees, particularly for the work accomplished. However, as previously stated, these two concepts are not the same. The primary distinction between these two is that compensation is monetary, whereas benefits encompass non-monetary perks.
