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What Is Total Compensation? A Complete Guide

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    A high salary isn’t the only way to attract, engage and retain employees. Total compensation considers all monetary benefits, resources and programs that enhance their experience, inspire high performance and promote their long-term growth. Read what makes up a total compensation statement and how to implement one in your workplace.

    High pay isn’t the only way to attract great employees. It’s compelling, sure, but compensation covers more than just salaries. Perks, bonuses, benefits and more contribute to talent’s engagement and long-term commitment.

    In fact, 60% of employees said quality benefits were important to their happiness at work, according to a 2022 Morning Consult survey commissioned by Paycom. Today, people don’t just want a paycheck — they expect total compensation that accounts for their whole selves.

    Whether you’re creating your first total compensation statement or revamping your current offerings, here’s what you need to know to give your business a competitive edge.

    What is total compensation?

    Total compensation is the combination of everything an employer offers to its workforce. Beyond wages, total compensation can include:

    Plus, total compensation doesn’t have a universal structure. It can look similar across companies, but it should always be informed by what employees expect and what defines a competitive offering based on an organization’s industry.

    What’s the difference between salary and total compensation?

    Salary refers to a fixed amount paid to an employee before payroll taxes. Total compensation, however, includes salary, benefits and any other monetary benefits employees receive.

    In most cases, salary will account for an employer’s largest expense in their total compensation statement. Even so, it doesn’t mean pay is the most important factor. Think of it as the foundation — or backbone — of total compensation.

    What is included in total compensation?

    Total compensation captures the monetary income employees receive. Consider these common forms of each.

    Salary or wages

    A salary or wage is the money an employee directly earns. For example, a worker could earn a fixed annual salary or generate pay based on the hours they work.

    Commissions or incentives

    A commission is supplement pay employees earn based on their performance. In sales, for example, it could be a percentage based on the value of deals an employee closes.

    An incentive, however, carries financial value but isn’t something an employee can cash out. It could be additional PTO days or a getaway courtesy of the company’s President’s Club.


    A bonus is extra income employees earn by meeting a specific goal. Unlike commission, a bonus doesn’t always correlate with the value of sale or service. Instead, it could be awarded to workers who:

    • earn the most professional certifications over a certain period
    • enroll the most customers in a promotional financing option
    • receive the greatest number of positive reviews
    • or something else entirely

    Equity or employee stock options (ESOs)

    Equity compensation and ESOs give workers a chance to buy shares of their company at a set — and usually discounted — price. These offerings can help employees connect their company’s financial growth and success to their own.

    Relocation assistance

    When applicants or current employees have to move for a role, relocation assistance allows them to weather some or all of the associated costs. This form of compensation helps:

    • motivate candidates to apply
    • retain employees who may otherwise be frustrated by the change
    • encourage more talent to apply for distant, yet necessary positions
    • remind employees that the organization cares about their financial well-being

    Pension plans

    Think of a pension or retirement plan as compensation with a delayed effect. Basically, employers either sponsor a preexisting fund or make a commitment to pay their people regularly once they formally retire. In turn, pensions help employees financially prepare for their post-work lives.

    Food allowances

    A food allowance is a limited amount of money businesses give their people to purchase meals and groceries. It might be set on a per-meal basis or as a daily lump sum. Regardless, it’s a valuable option for employees who travel for work or have regular long shifts.

    Fuel allowances

    In business, fuel or gas allowances let employers reimburse their staff who need to drive for their jobs. Outside reimbursements, a company may instead give its employees a fuel card, especially if talent must regularly drive to complete tasks.

    What are the taxable and non-taxable pieces of total compensation?

    While building a total compensation package, it’s important to consider which pieces are susceptible to state and federal taxes. Keep the following in mind as you assemble your statement.


    Salary and wages

    Depending on the amount of money an employee earns, their earning may be susceptible to certain employment taxes. These potential taxes should be clearly understood since these deductions partially determine an individual’s take-home income.

    Commission, bonuses and tips

    Commission, bonuses and tips are treated — and taxed — like salaries or wages. When broken down in payroll, however, the percentage taken out of any of these forms of income should appear separate from an employee’s base pay.


    For obvious reasons, non-taxable benefits are easier to manage from an administrative perspective. However, it’s still important to know which components aren’t taxed, including:

    • life, disability and medical insurance
    • qualified employee discounts, housing and meal plans
    • adoption and child care assistance (under a value of $5,000 per year)
    • retirement planning and financial literacy programs
    • on-site gyms and fitness centers
    • certain traveling expenses

    In most cases, a benefit that comes at no cost to employees won’t be taxable. Even so, employers should always consult a licensed professional for any questions about how taxes impact their total compensation statements.

    What are the benefits of total compensation?

    Total compensation gives companies the means to provide holistic support to their employees. Here are just five benefits of comprehensive offerings.

    1. Employee satisfaction

    Never underestimate the importance of happy employees. Total compensation demonstrates companies care about their staff’s entire being. According to a study from the University of Michigan, teams with high satisfaction tend to exhibit more:

    • empathy
    • respect
    • motivation
    • accountability
    • collaboration

    2. Increased employee retention

    It’s simple: Workers who know their organization cares for their well-being have less of a reason to look for another job. While no company can prevent all forms of turnover, a strong total compensation package that adapts to emerging needs boosts employee retention and gives people a compelling argument to stay as long as possible.

    3. Attracting top talent

    In addition to keeping employees, total compensation helps companies grow their team and attract ideal candidates. After all, most people would prefer to work for an employer that recognizes and addresses the full spectrum of their needs.

    4. Reduced financial burden

    In tandem with higher satisfaction, total compensation can alleviate a significant amount of financial stress. High pay doesn’t accomplish this by itself, especially for employees who have costly medical issues or struggle with substantial debt. That’s why financial literacy programs and EAPs should be top of mind when building out a total compensation statement.

    5. Improved employee engagement and morale

    Total compensation can help employees overcome the stressors that damage their focus and overall well-being. And today’s workforce desperately needs it. Global engagement levels hover at just 23% (32% in the U.S.), according to Gallup.

    How to deliver a total compensation package

    Offering total compensation isn’t as easy as tacking on a few extra benefits to your preexisting rewards statement. At the same time, you may not be able to just emulate another company’s approach.

    Understanding what has worked in the past is helpful, but any adjustment to compensation should consider what employees actually need.

    How to create a total compensation statement

    Keep these tips in mind as you experiment with total compensation and implement your statement:

    1. Choose what benefits to include. Generally, the more comprehensive your statement is, the better. However, consider surveying your employees to learn what options they value most. Who knows? You might discover you’ve been underestimating or overlooking a desirable option like pet insurance or greater parental leave.
    2. Draft a total compensation statement. After you identify your components, place these options into an understandable format — ideally with a clear evaluation of its total cost. The right HR management software can simplify building and editing these statements for employees.
    3. Distribute the statement to employees. After you finalize the statement, make it available to every employee. It could be appropriate for a CEO or vice president to formally announce it and remember to update any preexisting job postings to help boost your recruitment efforts. You should also clearly outline all offerings that are completely free for employees to promote usage.

    Examples of total compensation statements

    No one-size-fits-all option exists for total compensation statements. However, the Society for Human Resource Management recommends including these common items for each employee:

    • salary or hourly rate
    • medical benefits, including what an employer pays
    • a PTO use and accrual policy
    • explanation of disability, life and other applicable insurance
    • outlines of any EAPs
    • retirement benefits like 401(k)s or other pension plans
    • descriptions of family, relocation or education assistance
    • career advancement opportunities

    Remember, no benefit is too insignificant to exclude. Make sure your statement is concise, but don’t undersell a great offering, even if you only believe a few employees will take full advantage of it.

    Total compensation: FAQ

    What is a typical compensation package?

    At a bare minimum, compensation packages will include salary, insurance information, retirement options, time-off policies and a bonus structure. Of course, even having all of these pieces doesn’t constitute total compensation.

    How do employees negotiate total compensation?

    While certain elements of a total compensation statement won’t leave room for negotiations, things like salary, pre-hire PTO requests and relocation assistance can. Generally, employees should negotiate before accepting an employment offer or a new position.

    How do companies determine total compensation and reward packages?

    No single method for creating the best total compensation statement exists. However, employers should consider surveying their employees and studying what’s common in their industries. In some cases, an organization may have a unique opportunity to raise the standard for employees and secure a competitive advantage.

    What percentage of total compensation should be your base salary?

    Beyond minimum wage requirements, no law forces employers to offer a specific percentage of benefits relative to an employee’s pay. But according to the Bureau of Labor Statistics’ 2023 report, benefits account for 29.4% of an employee’s total compensation in the private industry. For state and local workers, benefits make up 38.1% of what they earn.

    Explore Paycom’s resources to learn more about employee well-being, engagement and other foundational HR topics.

    DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.