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What Is Compensation of Employees?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 November 2016
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Compensation of employees (CE) is a term that is used to describe the total wages and other cash disbursements that are made to employees within a specified time period. Typically, the figure will be calculated on a quarterly basis, but may also be calculated as an annual figure. The total compensation of employees related to a company or even a nation will account for all cash disbursements to employees of any kind, with the figure reflecting the pre-tax amount rather than the post-tax net income that the employee receives directly.

Several different types of cash disbursements are accounted for with a compensation of employees. Along with the gross wages and salaries, additional cash paid to an employee such as a bonus or a sales commission will also be included in the figure. This approach allows companies to identify the exact amount of cost that an employer incurs as the result of compensating an employee for his or her services. From this perspective, compensation of employees can be considered the total labor cost involved with each employee individually, and with the company’s employee force as a whole.

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The practice in many nations is to determine calculation of employees based on historical data, including only payments that have been tendered to employees as of the end of the period under consideration. There is also a slightly different approach that allows for including promised or pending payments to employees in the statistics for the period, such as a commission on sales figures that applies to that period but will not actually be tendered to the employee until after that period has ended.

Along with the use of compensation of employees in corporate settings, governments can also make use of this type of calculation as part of the assessment process when evaluating the current status of the economy. The cumulative data received from corporations operating in the country will be matched with data regarding the taxes withheld on those earnings and reflected in the national accounts for the nation, as well as in any type of balance of payment statistics related to a specific period of time.

Understanding the compensation of employees is helpful in a number of scenarios. For companies, this approach makes it easier to determine if total labor costs are within reason given the revenue generated and the production expenses associated with producing goods and services for sale. As it relates to a nation, calculating the compensation of employees for a given period, either for the nation as a whole or for specific industries operating within that nation, can provide valuable insights into the reasons behind the current state of the economy and also aid in projecting where the economy is likely to move next. Information of this type allows governments to utilize their own internal methods to help ease the severity of undesirable shifts in the economy while also positioning the government to support a projected upswing that will likely mean better times for everyone.

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