Guide to Employee Compensation Benefits

Employee compensation benefits are critical to attracting and retaining great talent for your company. What you offer is generally the deciding factor on whether an employee agrees to accept your job offer or not. Depending on the nature of your business, employees may have specific benefit and compensation needs, so you have to understand these needs and structure your employee compensation benefits accordingly.

It’s important for HR professionals to have a full understanding of compensation and benefits so that they can effectively work with management to build and retain a great team. 

Here we’ll explain what employee compensation benefits are, and what to consider when deciding what to offer to your employees. 

Types of Employee Compensation Benefits

Employee compensation benefits come in several forms.

Salary and Wages 

Of course, the salary or wages that you offer are arguably the most important part of compensation benefits. You need to understand what normal salaries and wages are for the positions you’re hiring for so that you can be competitive. If you’re having trouble hiring, offering a slightly higher salary or wage than average can make a huge difference. and Payscale are good resources for finding average salaries and wages. 

Bonuses and Incentives

Bonuses and incentives for sales or productivity can keep employees motivated. Some positions, such as sales, usually come with bonuses or commissions, so it’s something you’ll have to offer to attract and motivate great salespeople which are, of course, the key to increasing your revenue. 

Holiday bonuses also show that you value your employees and can help with retention. You should be consistent with the bonuses you give or increase them over time as your business grows.

Profit-sharing plans or stock options can also be a great incentive. 

Retirement Benefits

Retirement plans are often a great bonus for employees, particularly those that plan to stay with you for a long time. Setting up a 401K plan and offering matching contributions shows that care about the employees’ long-term well-being. 

It’s very simple to set up a 401K or pension plan for your employees. Your financial advisor can help you with the setup and the administration. 

Health and Wellness Benefits

Healthy employees, both physically and mentally, are more productive, which benefits your business and can justify the cost of providing health and wellness benefits. Many people will only take jobs that offer health benefits as well, since none of us can afford to live without them.

The Affordable Care Act has health benefit requirements that you need to meet as well, so make sure that you’re offering what you must under the law.

Other wellness benefits such access to mental health resources can also be an added benefit. Some companies even offer discounted gym memberships as another bonus for employees. 

Paid Time Off and Vacation Time

Everyone needs personal time, but most cannot afford to take unpaid days off. Offering a certain number of PTO and vacation days that increase over time can be a great incentive for employees. Employees who have a better work life balance are also happier, and thus more motivated and productive. 

Legal Requirements for Employee Compensation Benefits

You need to make sure that your benefits follow all laws and regulations. Every state has minimum wage and overtime requirements, as well as pay frequency requirements, so you need to be familiar with the laws of your state. Non-compliance with such laws can lead to penalties or even lawsuits brought by employees. 

If you use a payroll service, they can ensure your compliance with those laws. 

You also need to be aware of equal pay laws set by the Equal Pay Act, which apply to all forms of employee compensation and benefits. The Equal Employment Opportunity Commission also has rules regarding discrimination that you must take care to follow.

Again, be aware of the requirements of the Affordable Care Act and be sure to stay in compliance. 

Creating a Compensation Benefits Package

First of all, you need to assess the needs and desires of your employees or prospective employees. Do they tend to be young people who are less interested in retirement benefits, or are they more established people with families who are looking for a more comprehensive benefits package that includes both health and retirement benefits? 

You also should evaluate your competitors to see what they offer, so that you can design a competitive package. Not offering competitive benefits is going to cost you more in the long run because you’re likely to have unfilled positions and/or high employee turnover. Both can affect the quality of the experience that you’re providing to your customers. 

Of course, you’ll also need to set a budget for your employee compensation packages. It needs to be affordable, and not cause the business to have cash flow issues. Speak with your accountant about managing the costs of your benefits package to determine what you can afford. 

Once you’ve determined what benefits to offer, you need to communicate it to all current employees so that they know what’s available. You also need to include information about benefits in your job postings so that you can attract more interested job seekers. 

Managing Employee Compensation Benefits

First of all, you need to make sure that you stay in compliance with all regulations over time. Regulations sometimes change, so you’ll need to stay current. 

You also need to evaluate the effectiveness of your benefits package. Has your hiring rate improved? Is your employee turnover lower? Ask your employees how they feel about their benefits on a regular basis. 

If you’re not seeing the improvements that you had hoped for, or you get negative feedback from employees, you’ll need to reevaluate your packages and make changes as necessary.


No business can operate without a team, and employee turnover is costly. Competitive compensation and benefits are critical to attracting and retaining the talent you need to make your business successful. You’ll find over time that the investment you’re making in your most important resource – your people – will pay off as your business grows.

Guide to Employee Compensation Benefits was last updated April 3rd, 2023 by Esther Strauss