Advice On Employee Compensation & Benefits For SMEs

by Admin on April 14, 2013


This is one aspect of HR that is becoming increasingly difficult to handle. While companies are cutting down on their expenditure, I think it is only fair that we shed some light in this area that is often confusing, to make it easier for people to comprehend.


Compensation is a payment that a company pays to an employee for services rendered to that particular company. It is the reward that the employee gets for doing the job he was hired for. Under normal circumstances, it takes the form of wages and salaries. The major determining factor in arriving at the compensation is usually the job description. People in different job groups will be compensated differently. The law in some countries dictates the minimum amount of compensation that can be paid to an employee. There are two components of compensation: basic pay and variable pay. Basic pay is determined by the role of the employee in the company as well as the prevailing market rates for that particular service. Variable pay in most cases is conditional, and is dependent on how well an employ carries out his duties in the firm.


Benefit is a term that is used to describe the value that is accorded to an employee for his contribution to a company through his work. Though a monetary value can be attached to the benefits, they are not considered as payment. Benefits can take many forms, including but not limited to, promotions, insurance, leaves, retirement benefits, holidays and ownership of the business. Some common benefits include health insurance, bonuses, pension schemes contributed to by the employer, life insurance, a chance to share the profit of a company and shares floated to employees at a low cost. Some companies give disability insurance, while others will educate your children for you.

Key difference

The main distinction between compensation and benefits is that compensation is a worker’s right while benefits are not. Employers are however compelled by the law to give their employees certain benefits, such as worker’s and unemployment compensation.

Factors affecting benefits

The benefits accruing to a particular employee are dependent on many factors. Your position in the company matters, and the human resource managers will be keen on this.  For example, a line manager is not entitled to the same benefits as junior employees or the top management. Most human resource departments are designed in such a manner that the longer your service is to a company, the more the benefits. As such, an employee who has served the company for a year will not be entitled to the same benefits as an employee who has been faithful to a firm for 20 years. Whether you are a full time employee or a part time employee is also taken into account. Some benefits are pegged on the geographical location. A hardship allowance will be granted to those who are working in areas which offer great challenges to life, while house allowance is dependent on the geographical region where you live. Those living in cities which are expensive will probably get more, with the reverse being true.

Who pays for the benefits?

In most cases, the company pays for the benefits, though there are a few situations where employees have to pay partially for the benefits.  Businesses are operating in hard economic times, and it is no wonder to see employees paying for some of their medical insurance, especially when it comes to dental cover.

Indeed, a closer look at the pay slips of most employees reveals some deductions for some of the benefits, especially relating to pension, medical insurance and social funds.

About the Author

Jessica Jones and Breathe HR have combined forces to bring you career advice, Jessica has been in the human relations for 11 years and Breathe HR is a cloud based HR system.

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