What is Remuneration? What are Remuneration Types?
What is Remuneration?
The term remuneration in general means compensation or pay. The term "pay" is more commonly used than remuneration or compensation.
Remuneration also has a broader meaning as base salary or pay plus bonuses, commissions, and other payments or benefits paid to an employee under the terms of an employment contract.
How is Remuneration Determined?
Businesses can set up their own remuneration systems, as long as they comply with federal and state laws.
And it goes without saying that businesses should treat employees of the same category the same, to avoid discrimination and lawsuits. Even without a contract, an employee may be entitled to specific amounts of remuneration, based on practice and policy.
What are the Typical Types of Remuneration?
Remuneration or compensation comes in various types. The type of remuneration or compensation depends mostly on the type of worker or the type of work being done. Here are some of the most common types of remuneration:
Salary. A salary is pay given to an exempt or salaried individual for work done. A salary is usually expressed in annual terms, as "He has a salary of $50,000 annually." Salaries are paid out either monthly,semi-monthly (24 times a year) or every other week (26 times a year). These salaries are paid during vacations, holidays, and paid leaves of absence, but not during unpaid leaves.
Hourly. Some employees are paid at an hourly rate, and only for hours actually worked. Hourly workers are usually in non-exempt jobs - anything from factory workers to clerical staff.
Commissions. Salespeople are usually paid on commission; that is, they are compensated based on sales over a period of time. Some salespeople are independent contractors, who may still be paid commissions.
Benefits. Employee benefits come in many varieties. Some, like unemployment benefits and worker's compensation benefits, are mandated by state or federal laws. Other benefits are determined by the company. Some paid-time-off benefits are part of the employee's salary or hourly wage package.
Other payments. Some other payments to employees are also considered to be remuneration. For example, if you pay employee moving expenses and you don't require them to provide receipts, you are in essence giving them additional benefits.
Bonuses and Incentives as Remuneration
Employees may be paid a bonus at various times and for various reasons. Some bonuses are performance-related, while other bonuses may be given to all employees in the company or a work group at the end of a big project or at the end of a particularly good year for the company.
Incentives are motivational, as they are rewards for employees, serving as a "thank you" for work well done or above and beyond the cause of duty.
Incentives can include bonuses, but this type of compensation can also include raises (in salary or hourly rate) recognition awards, and service awards.
Incentive programs are common for motivating salespeople, and they may include non-cash incentives like trips or paid time off. And many companies offer cash and non-cash incentives to executives, including stock options.
Other non-cash incentives, like wellness programs, may be available to all employees.
Remuneration and Taxes
ALL types of remuneration or compensation are taxable to the employee. The value of the type of compensation is easy for pay types and for benefits, cash bonuses, and cash incentives. But the taxable value of non-cash incentives is more difficult to determine. It might be easy to determine how much a small trophy is worth, but how much is a wellness benefit worth, as a taxable amount?
The IRS has a booklet (Publication 5137) that is a Fringe Benefit Guide and which may help you sort out this complicated issue.
Just remember that if you give something to an employee in the form of remuneration, it's almost certainly going to be taxable. That means, you may have to withhold income taxes (federal and state, if your state taxes income) and payroll taxes (federal and state income taxes and FICA taxes) from the payment of this benefit (from a bonus, for example). You will also have to report the value of any remuneration on the employee's W-2 form.
Check with your tax professional for more details on how to pay and report remuneration.
This article on Types of Employee Compensation and Taxes may give you more information about this subject.