Many believe that worker's compensation is a modern or industrial-era concept, but that can not be further from the truth. We may find one of the first examples of a workers' compensation scheme in 2050 B.C.
Under the Sumerian Law, there were strict regulations regarding worker's compensation. Similar rules existed in Greece, China, and other countries worldwide. For instance, in Ancient Arab law, if an injured worker harmed their ear, they were compensated based on the surface area affected.
But, what do we mean by compensation? Does compensation only include basic pay, or does it have other components also? This piece covers everything you must know about compensation and how you can create the perfect compensation plan that will benefit you and your employees.
Table of Content:
- What is Compensation?
- American Workers' Compensation History
- Why is Compensation crucial for Businesses?
- What are Compensation Philosophies?
- How to create the perfect Compensation Plan?
- Bottom Line
- How can Deskera assist you?
- Key Takeaways
What is Compensation?
Compensation is the monetary or non-monetary reward provided to employees for their services. The level of remuneration offered is determined by various criteria, including salary paid by comparable organizations for comparable tasks, the employee's skill set, productivity, and the company's present and expected financial status.
Compensation is more than just a salary, but it is a component. Compensation consists of a variety of aspects, including financial and non-financial rewards. Here are some common and often neglected forms of compensation:
· Base salary, hourly or salary wages
· Overtime compensation
· Longevity pay
· Profit-Sharing payments
· Planned incentive or achievement reward
· Earnings from Tips
· Benefits like medical insurance, vacation, paid leaves, retirement, etc.
· Stock Options
· Allowance for travel/meals/housing
· Child care and education allowances
· Free meals or gym memberships
· Employee support programs
· Health and wellness assistance
· Other non-monetary benefits
As you can see, compensation is a lot more than just basic pay or monthly check. So next, let's look at a brief history of worker's compensation in the USA.
American Workers' Compensation History
It took 37 years for each state to enact its own workers' compensation regulations. Wisconsin was the first to do so in 1911, followed by nine additional states in the same year. In 1948, Mississippi was the last to pass a compensation statute.
The latest development in the history of worker's compensation in the USA came in 1990 with the Americans with Disabilities act. The act demands that all workplaces be handicap accessible and that employees with disabilities get appropriate accommodations.
Compensation was a crucial part of running a business a hundred years ago and is also vital today. The following section will look at why compensation is so vital for businesses.
Why is Compensation crucial for Businesses?
Compensation is a critical component of running a business, and it can make or ruin a company. But conversely, a solid compensation plan may help enterprises thrive and survive in their respective marketplaces.
Some of the advantages of providing your staff with a competitive compensation plan include:
· It helps in attracting the best talent
· Increases employee motivation and productivity
· Increases employee loyalty
· Increases profitability
· Increases job satisfaction and engagement
· Aids in retaining outstanding employees
In times like now, when competition is cut-throat and every company is trying to recruit the best candidates, having an attractive compensation plan is not just important but imperative.
Before diving into making the perfect compensation plan for your business, we should first look into compensation philosophies to base every compensation plan or strategy.
What are Compensation Philosophies?
A compensation philosophy systematically describes a business's worker remuneration policies. Compensation philosophies assist businesses in advertising available positions, establishing uniformity in their payment processes, and encouraging employee productivity.
While H.R. divisions often establish and convey policies, they may collaborate with top management to ensure their philosophy matches corporate goals and offers value to their operations.
Companies often describe their compensation policies in one of four ways:
1. Market comparison
Companies can express their compensation philosophy by stating how much they accept to pay depending on market norms. They typically employ percentiles to demonstrate their perspective.
2. Fixed pay
Fixing set rates for specific roles is another approach to expressing compensation philosophy. Some organizations categorize their jobs. A worker's earning potential is defined by the job category. When an enterprise creates a job, they assign it a category and a remuneration package.
Some businesses do not use numbers to illustrate their remuneration policies. Instead, they lay out their beliefs and values for employee compensation and benefits. Companies can state the objectives of their compensation philosophy here. For example, their purpose may be to provide a salary that entices top-notch workers to work with them.
Another approach to describing compensation philosophy is through a document that includes line items to explicitly outline how employees are compensated for their job.
For example, the paper may consist of base salary, benefit offers, and extra incentives or employee benefits in the analysis. Philosophy breakdowns make it simple to grasp all aspects that influence employee salary.
With that out of the way, let's make the perfect compensation plan for your business to benefit employers and employees.
How to create the perfect Compensation Plan?
When designing a compensation strategy, focus on what is best for your business rather than "right and wrong." Following are some practical tips for creating the perfect compensation strategy:
1. Outline: Set specific goals for your business, teams, and employees. Start with job descriptions for each team member and create a basic budget for your people. It will serve as a base or a basic outline for your compensation plan.
2. Hire a compensation manager: This role, often filled by an H.R. professional, aligns the program and studies what each position pays in the sector, how to decide job categories, and how to choose a direct compensation method.
3. Make a compensation Philosophy: Determine how competitive you will be in the employment market for your industry. Are you going to be the industry leader in direct compensation, or will you provide a low salary with excellent benefits?
4. Rank roles and arrange them in a matrix: Outline, for example, what, if any, pay tiers should exist in compensation structures for CEOs and salespeople. It would be best to consider possible levels within each job categorization.
5. Create seniority ratings for each job classification: It is critical to creating possibilities for job progression. Set levels 1-3 or senior- and entry-level jobs that may influence the remuneration matrix but will provide opportunities for the advancement of workers.
6. Decide on wages and hourly pay scales: Once you've created a framework for your compensation platform, set pay rates and a salary range for each position and job classification.
7. Ensure that other policies are in place: A compensation plan influences a variety of payroll, bonus schemes, and pay-related rules. Companies, for example, frequently have rules for paid vacations, medical coverage, payroll management, and company-issued pay increments that must be factored into, or at least aligned with, the company's compensation policy.
8. Create a communication strategy: You should inform your entire workforce about the business's compensation scheme. To convey the plan, use a variety of communication tools. If not all of your staff speak English as a first language, make this message available in several languages. Expect to be bombarded with questions. Everyone does not readily comprehend the nuances of total pay – yet every employee must understand their compensation package.
9. Monitor, Adjust and Evolve: Be always ready to change your compensation plan. Adapting your compensation plan over time will be necessary for you to stay legal and competitive.
Part of creating a compensation plan is ensuring that it is equitable for all of your workers. It does not simply apply to gender, culture, race, nationality, and other factors, though they do. It should also include newcomers' skill sets and expertise in your organization.
A well-thought-out pay package may recruit better staff and keep them for an extended period. Consider features like medical coverage, paid time off, and extra perks in addition to the basic income when developing a competitive compensation package.
Creating the perfect compensation plan and managing compensation for every worker is no easy task. It takes time and human resources, but there is a way to make everything easier. Check out Deskera People- a cloud-based HR and payroll management software to make managing worker's compensation a piece of cake.
How can Deskera assist you?
Deskera People is an HR-specific cloud-based software that allows you to create your payroll schedules based on distinct groups of workers or contractors and their various pay periods, such as weekly, semi-monthly, monthly, etc. As a result, you can manage all industry-specific compensation schedules.
You will also be able to create a personalized compensation package with components such as employee bonuses, overtime pay, voluntary deductions, etc. Deskera People will automatically identify these and compute your employees' compensation appropriately.
Additionally, you can use Deskera People Direct Deposit Service to deposit your employees' salaries immediately into their bank accounts soon after payroll finalization.
What Information Must an Employer Provide to a New Hire?
Your job posting will most likely include compensation information. You may only briefly mention the benefits at first, but inform them about the compensation plan in detail once you hire them.
Do Employee Benefits Have to Begin on the First Day?
Not every perk needs to start on the first day of new employment. Some benefits, however, are mandated by law to begin immediately. Medicare and Social Security contributions, for example, must start immediately. Other perks, such as retirement plans and health insurance, will be available later.
Is it possible for benefits to differ from one employee to another?
In general, you may provide different perks to different types of employees. However, if you choose group benefits, you must guarantee that everyone in the group gets the benefits. For example, if your organization has a policy of providing health insurance to employees, yet one of your employees is not obtaining health insurance, this is illegal.
How Deskera Can Assist You?
As a business, you must be diligent with the employee payroll system. Deskera People allows you to conveniently manage payroll, leave, attendance, and other expenses. Generating payslips for your employees is now easy as the platform also digitizes and automates HR processes.
· Many believe that worker's compensation is a modern or industrial-era concept, but we may find one of the first examples of a workers' compensation scheme in 2050 B.C.
· Compensation is the monetary or non-monetary reward provided to employees for their services.
· Non-monetary payments include medical coverage, stock option, paid leaves, vacation plans, etc.
· Compensation is a critical component of running a business, and it can make or ruin a company.
· A solid compensation plan may help enterprises thrive and survive in their respective marketplaces.
· Compensation philosophies are the base of every compensation plan or strategy.
· A compensation philosophy systematically describes a business's worker remuneration policies.
· Companies often describe their compensation policies in one of four ways: Market Comparison, Fixed Pay, Value-based and Delineated
· Once you have decided on a compensation philosophy, you can start making a compensation plan or strategy.
· When designing a compensation strategy, focus on what is best for your business rather than "right and wrong."
· Part of creating a compensation plan is ensuring that it is equitable for all of your workers