{"id":6164,"date":"2020-07-09T12:00:00","date_gmt":"2020-07-09T10:00:00","guid":{"rendered":"https:\/\/beebole.com\/blog\/?p=6164"},"modified":"2025-01-22T11:48:10","modified_gmt":"2025-01-22T10:48:10","slug":"what-does-annual-compensation-mean","status":"publish","type":"post","link":"https:\/\/beebole.com\/blog\/what-does-annual-compensation-mean","title":{"rendered":"What does annual compensation mean? (and 9 more up-to-date FAQ on employee compensation in the US)"},"content":{"rendered":"\n

When it comes to annual salary and compensation, there can be a bit of confusion. What do these words encompass, how are they defined, and what\u2019s legally required from an employer\u2019s perspective? <\/p>\n\n\n\n

Those are just some of the most frequently asked questions when it comes to annual compensation, which is why we\u2019re tackling them\u2014along with many other important questions\u2014below.<\/p>\n\n\n

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1. What\u2019s the difference between annual salary and annual compensation?<\/H3>\n <\/div>\n <\/div>\n
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Quite simply, annual salary<\/strong>\u00a0generally refers to the annual amount of money employees are paid for their work, and what other times might be called base pay. It doesn\u2019t usually include variable pay or non-monetary types of compensation.<\/p>\n

Annual compensation<\/strong>, on the other hand,\u00a0is the base salary added to the value of variable pay like bonuses and commissions<\/strong>, as well as non-monetary types of compensation, which might also be referred to as benefits<\/a> or perks. Those could include health insurance, a dental plan, a 401(k) (or other retirement plans), equity, paid vacation time, tuition assistance, childcare, discounted parking, gym memberships, and more.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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2. Are full-time, salaried employees paid for working overtime?<\/H3>\n <\/div>\n <\/div>\n
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According to the\u00a0Fair Labor Standards Act<\/a>, salaried employees who make at least minimum wage are classified as exempt. By definition, exempt employees are not entitled to overtime pay. That being said, it\u2019s still beneficial to both the employee and employer to implement\u00a0time tracking at work<\/svg><\/span><\/a>, regardless of whether employees are entitled to overtime payment or not. Effective time tracking allows for smarter decisions, better budgeting, and more accurate projections.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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3. Are all U.S. companies required to provide qualified health insurance to their employees?<\/H3>\n <\/div>\n <\/div>\n
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There is no law directly requiring U.S. employers to provide coverage to their employees, though most companies do so for two reasons.<\/p>\n

To avoid getting penalized by the IRS, employers with more than 50 full-time\u00a0employees are required to provide health insurance to 95% of their employees<\/a>\u00a0according to the Affordable Care Act (ACA). In addition to meeting the minimum requirements for coverage and affordability, the health care plan must extend to the employees\u2019 dependents under the age of 26.<\/p>\n

Furthermore, offering attractive health care plans (as well as dental and vision), is a great bargaining chip when it comes to attracting and retaining top employees. According to a study from the U.S. Bureau of Labor Statistics,\u00a087% of full-time employees were offered health care insurance in the U.S. in 2019<\/a>, a number that highlights the prevalence of this benefit offered through work.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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4. I\u2019m a small business owner with fewer than 50 full-time employees. Should I provide qualified health insurance to employees?<\/H3>\n <\/div>\n <\/div>\n
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Companies with fewer than 50 full-time employees that don\u2019t offer health insurance won\u2019t be penalized by the IRS, and it is not required. Still, providing health care or not could be a deciding factor for employees wanting to join or stay on the team. Also keep in mind that small companies can apply for a\u00a0small business tax credit<\/a>\u00a0if they do offer qualified health insurance to employees.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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5. How much does it cost to provide health insurance to employees?<\/H3>\n <\/div>\n <\/div>\n
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There\u2019s not a one-size-fits-all equation to answer this question as the cost will depend on various factors. When figuring out how much it will cost to provide health insurance to employees, employers should consider the following: the insurance company itself, location, the employees\u2019 demographics, and the type of health plan to offer.<\/p>\n

Once those factors have been decided upon, the business can purchase a group health insurance plan for the employees, or set up a contribution amount toward employees\u2019 health insurance.<\/p>\n

According to an\u00a0annual report published by the Kaiser Family Foundation<\/a>, the average annual premiums for employer-sponsored health insurance in 2018 were $6,896 for single coverage and $19,616 for family coverage, of which $1,186 and $5,547 are paid by the covered employees. The amount paid my employees is typically just deducted from their monthly paycheck.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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6. Are annual salary reviews mandatory in the U.S.?<\/H3>\n <\/div>\n <\/div>\n
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No U.S. law requires an annual salary or performance review for employees, but there\u2019s a reason most companies put such reviews in place. While employees can\u2019t sue an employer for not giving them an annual review, they\u00a0can<\/em>\u00a0sue for unlawful termination and\/or wages, which makes a strong case for having a documented history of employees\u2019 work history and performance.<\/p>\n

Apart from that, annual salary reviews and annual compensation reviews are crucial to a company\u2019s success. Not only do they help centralize and organize company salary patterns, they also provide a framework for employee success and engagement.<\/p>\n

So while it\u2019s not mandatory by law, it\u2019s no mystery why most companies do have annual salary, compensation, and performance reviews in place.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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7. How do you calculate employees\u2019 salaries?<\/H3>\n <\/div>\n <\/div>\n
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As an employer, it\u2019s extremely important to consider this question when calculating employees\u2019 salaries: Are my employees paid fairly? And while there is no set-in-stone algorithm to find the right number, there are some key things to keep in mind, which are as follows: comparison to peers, comparison to market, and other factors like cost of living and performance. For a more in-depth look, check out our complete guide to successfully performing an annual compensation review<\/a> in Google Sheets.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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8. How can I calculate the actual cost of an employee?<\/H3>\n <\/div>\n <\/div>\n
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It\u2019s important to remember that the annual salary of an employee is not the\u00a0actual\u00a0<\/em>cost of a salaried employee<\/strong>. Depending on the formula you use to calculate this number, the actual cost of an employee is actually between 1.25-1.4 times the base salary, or 18%-26% more than the base salary. This post on the actual cost of employees<\/a>\u00a0walks you through both equations.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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9. Are employers required to pay severance?<\/H3>\n <\/div>\n <\/div>\n
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In short, no. According to the FLSA, employers are only required to pay terminated employees\u2019 wages through their last day of work, as well as for any time the employee had built up (i.e., unused vacation days).<\/p>\n

That being said, many companies do offer severance pay and\/or packages. It\u2019s important to note that severance pay and packages are included in an employee\u2019s contract and decided upon along with the base pay and any other forms of compensation. Generally speaking, severance pay could range from a week or two worth of pay for each year the employee has worked up to an entire month\u2019s pay for each year worked.<\/p>\n

While there is no law requiring employers to pay severance, employers are required to offer COBRA (Consolidated Omnibus Budget Reconciliation Act), which gives recently terminated employees the right to prolong their health benefits provided by the company. Note that in this scenario, employers can require employees to pay the premium for their health coverage.<\/p>\n<\/div>\n <\/div>\n <\/div>\n<\/div>\n\n\n

What the experts are saying<\/h2>\n\n\n\n

Annual compensation, and the reviews that come along with them, can be complicated. We thought we’d let a few experts weigh in with their thoughts on them.<\/p>\n\n\n\n

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We need to be justifying compensation more on what people do and accomplish and how they work together (or influence the success of other people) versus just compensating the people who demand the most, and who are the biggest bullies. I think if you can do surveys and assessments of people, and collect people analytics data that really shows the contribution that people make, as well has have other people assess each other on how much value they add to the company. There aren\u2019t a lot of companies that do that right now, but I do think that that\u2019s coming.<\/p>\nMitch Zenger (People Analytics Experts)<\/cite><\/blockquote>\n\n\n\n

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Check job advertisements from your competitors or similar type of jobs in your area. Why? Because these are the jobs that your employees are flocking to if you do not pay them what they desire. Salary surveys are excellent tools, however they are outdated the minute they are printed, especially in today\u2019s tight labor market. Yes, money talks but so does your benefit package and above all\u2013your culture. You can pay someone the highest pay they have ever received, but if your culture is stifling, they will either \u2018quit and leave\u2019 or \u2018quit and stay.’<\/p>\nWendy Sellers (The HR Lady)<\/cite><\/blockquote>\n\n\n\n

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As the job market changes and an employee’s experience level grows, companies need to consider increasing and monitoring comp levels to be in line with the market, and to show your employees that you value their contribution. Your compensation increases should be frequent\u20141-2 times per year\u2014and in line with the market rates. In this competitive market, an experienced employee who is even an average performer is worthy of an increase to show your appreciation for their continued commitment and effort.<\/p>\nJessica Miller-Merrell (Founder of Workology)<\/cite><\/blockquote>\n\n\n\n

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We hope this post has been both helpful and insightful, and we\u2019d love to hear from you in the comments below. What\u2019s been your biggest struggle with annual compensation?<\/p>\n\n\n\n

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RELATED POST<\/div><\/div>\n\t\t\t\t\t\t\t\t
The complete guide to annual compensation reviews using Google Sheets<\/div>\n\t\t\t\t\t\t\t\t\t
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\n\t\t\t\t\t\t\tRead more\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/svg>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t<\/a>\n<\/div>\n\n\n

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Photo by theyshane on Unsplash<\/p>\n","protected":false},"excerpt":{"rendered":"

When it comes to annual salary and compensation, there can be a bit of confusion. What do these words encompass, how are they defined, and what\u2019s legally required from an employer\u2019s perspective? Those are just some of the most frequently asked questions when it comes to annual compensation, which is why we\u2019re tackling them\u2014along with […]<\/p>\n","protected":false},"author":14,"featured_media":10510,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[123],"tags":[1295,1823],"class_list":["post-6164","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-productivity-time-management","tag-workforce-management","tag-employee-cost"],"acf":[],"_links":{"self":[{"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/posts\/6164","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/comments?post=6164"}],"version-history":[{"count":10,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/posts\/6164\/revisions"}],"predecessor-version":[{"id":13291,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/posts\/6164\/revisions\/13291"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/media\/10510"}],"wp:attachment":[{"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/media?parent=6164"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/categories?post=6164"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/beebole.com\/blog\/wp-json\/wp\/v2\/tags?post=6164"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}