Remuneration – Definition, Meaning, and Types

As an employer, it is important to know that compensation to your personnel includes more than their basic pay. It comprises several potentially taxable benefits.

Having an understanding of which types of compensation are included in remuneration and its tax implications is beneficial. It helps you to make an informed decision on the benefits you would like to offer your employees. Read on to learn more about remuneration.

What is Remuneration?

As per Oxford Learner’s Dictionaries, remuneration is “an amount of money that is paid to somebody for the work they have done”. It is the total compensation paid to the employees for their services. In addition to the basic salary, it includes benefits like commissions, bonuses, overtime pay, and other financial compensation paid by the employers to their personnel.

Perks may or may not be a component of the employee’s compensation. For example, a generous holiday plan and an on-site gymnasium are perks but these do not offer any monetary benefits to the employees.

Therefore, it can include direct monetary payouts or other taxable fringe benefits like the use of a corporate vehicle.

How Does Remuneration Work?

Companies can set up their own structures for the remuneration of employees as long as these adhere to the government rules and regulations. Some of these are as follows:

• Working hours can vary from one state to another; however, the national standard is set at a maximum of nine hours per day and 48 hours per week; any additional hours are compensated at double the normal rate.
• Employees shouldn’t work more than two hours per day as overtime.
• There is a national minimum wage rate, which is INR 176 per day in 2021; however, some state and local governments may apply their own minimum wage rates based on the skills of the employees and industries.
• Several workers are eligible for statutory bonuses; employees working in a company that employs at least 20 people and earns less than INR 10,000 per month are entitled to receive bonuses between 8.33% and 20% of their yearly salary.
• Employees who have worked for at least five years with a company are eligible for a severance pay calculated as 15 days’ wages for every year of employment.

Types of Remuneration

There are different types of remuneration based on the type of worker and the kind of work they do. Some of these include the following:

• Salary

The basic salary is the base compensation paid to the employees and often comprises between 35% and 50% of the total pay. It is a pre-determined amount paid before any increases or reductions.

If you want to calculate your salary, you can do so with our free salary calculator which helps you understand what are the tax components, deductions and net salary.

• Wages

Wages are monetary compensations paid to the employees in exchange for completed work or providing a service. The amount can be fixed (piece rate or task wage) for every task that is to be completed.

Wages can also be paid at an hourly or daily rate (wage labor) or based on any other measurable quantity of completed work.

• Commission

In addition to the regular salary remuneration, some employers may offer sales commissions to their people. Some companies may offer only commission-based jobs where the compensation varies based on different work variables, which are often determined by the employers.

For example, the commission may depend on the quantum of sales, frequency of sales, number of customers brought, and performance. The commission is generally a percentage of the pre-determined variable.

• Bonus

Bonus is generally the compensation given to employees over and above their annual remuneration/ pay. This amount is paid in addition to the base salary of the employees and may be used as a reward or recognition of the employees’ achievements.

Bonuses can be variable; however, most often these are performance-based. This means that companies distribute bonuses based on the performance of individual employees or team contributions.

Most bonuses are discretionary where the manager decides on who is eligible to receive it and the quantum. Non-discretionary bonuses are a part of the employee contract.

• Incentives

Incentives are used to motivate employees to improve their performance. These can be cash or non-cash incentives and may comprise part of the managerial remuneration.

Some examples of non-cash incentives include wellness programs, trips, and even stock options.

• Special Allowance

It is a fixed amount paid to the employees in addition to the basic monthly remuneration to meet some predefined criteria. Special allowances vary from one company to another.

Some companies offer it as an allowance to their people to meet certain expenses for the efficient performance of their duties.

• Dividends

This is the amount distributed to the company’s shareholders and is a method for distributing profits amongst them.

Companies that have consistent earnings over the years often pay dividends to their shareholders, which increases their confidence in the organizations. Dividends are paid either in cash or in additional stock.

To sum it up, remuneration is the compensation paid to the employees and may comprise basic salary or hourly pay, commissions, bonuses, incentives, and other payments.

It is the sum of the total income and other taxable allowances and benefits.