Indirect Compensation

HR Glossary for HR Professionals

Glossary of the most common HR terms and acronyms to assist professionals navigating the ever-growing and ever-changing world of HR terminology.

Indirect Compensation

What is Indirect Compensation?

Indirect compensation is a form of payment by employers offered to employees that is typically characterized as non-monetary benefits.

A strong indirect compensation package can be part of an effective recruitment strategy for attracting and retaining top talent.

What is Considered Indirect Compensation?

Types of indirect compensation can include health insurance, tuition reimbursement, maternity and paternity leave, retirement plans (such as pension plans), life insurance, access to a company car, and other indirect benefits.

Why Should Employers Offer Indirect Compensation?

Much like other employee benefits, the importance of indirect compensation can not be understated. This form of non-wage compensation can play a significant role in boosting an organization’s retention rates, lowering its turnover, and fostering a thriving company culture.

What’s the Difference Between Direct and Indirect Compensation?

Direct compensation is money paid directly to employees by the company for labor and services in the form of financial compensation. This kind of compensation includes an employee’s base pay (hourly or salary), commission, bonuses, and stock options.

Meanwhile, indirect compensation does not include monetary payout or impact an employee’s wages, but does offer quality-of-life improvements that make an employee’s total compensation more appealing.

Related Terms: Compensation

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