Compensation

Meaning & Definition 

Compensation is the term which describes that all the money and goods that an employee earns from their  job (for example, fixed salary, variable salary such as commission or bonus, incentive or performance-based reward, money allowance like statutory salary & benefit). In human resource management (HRM), compensation helps to attract, retain & motivate employees while ensuring fairness & legal compliance.

Significance of Compensation

• Attracting and retaining skilled workers within a competitive marketplace. 
• Motivating employees by providing competitive salaries that are tied to performance. 
• Ensuring there is internal equity between jobs and consistency of pay rates within roles. 
• Impacting directly on payroll budgets and cost plans. 
• Assisting companies in complying with employment and tax legislation.

Legal Compliance / Policy / Regulation 

• The Code on Wages (2019) provides the rules and regulations for minimum wage, the way wage payments are made, and the definitions of wages.
• The Income Tax Act (1961) provides the rules and regulations on taxation of any salary component.
• The Employees’ Provident Funds Act (1952) and the Employees’ State Insurance Act (1948) provide the rules and regulations for the statutory benefits that are part of an employee’s compensation package.
• Depending on the type of employee, the salary structure, and the size of the organisation, there may be additional guidelines imposed by these laws.