HR Glossary

Indirect compensation

Indirect compensation is a non-monetary benefit provided to employees in addition to their salary. These benefits are important because they can help companies in attracting and retaining talent.

what-is-indirect-compensation

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Definition of Indirect Compensation

Simply put, “Indirect Compensation” is a non-cash benefit provided to an employee. It is a compensation which is not paid directly to the employee.

Indirect compensation is an addition to direct compensation, which is a monetary remuneration paid directly to employees for their services.

Direct compensation with additional indirect compensation make the total remuneration package:

Total remuneration package = direct compensation + indirect compensation

The importance of Indirect Compensation

It is wise for employers to acknowledge the power that indirect compensation can play in getting and retaining employees, especially if the employees are otherwise satisfied with their direct compensation.

According to Glassdoor research, 57% of candidates report benefits being among their top considerations before accepting a job.

Many employees have recognized the importance of benefits in attracting top talent. Your best job candidates are passive job seekers. Passive job seekers are those candidates who are not actively looking for a new job but would be willing to accept a better offer.

Remember, a better offer doesn’t necessarily mean more money. It can be a benefit like flexible working time, education, opportunities to grow, cool projects and many other.

Types of Indirect Compensation

There are many different types of indirect compensation.

It is worth mentioning that only a few types of indirect compensation are mandated by law (for example overtime policy). Most types of indirect compensation are optional, which means that companies are not required to offer them, but they can choose to provide them if they want.

Here is the list of the most common examples of indirect compensation:

  • Health insurance
  • Life insurance
  • Disability income protection
  • Retirement benefits
  • Social security
  • Employer student loan contributions
  • Educational benefits
  • Childcare
  • Relocation benefits
  • Housing benefits
  • Vacation days
  • Leave policy (sick, casual, maternity leave)
  • Overtime policy
  • Flexible working hours
  • Company car
  • Company laptop
  • Company mobile phone
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