24 MONETARY AND NON MONETARY BENEFITS

S. Thilagamani

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Objectives

 

This module will enable the learner to

  •  Compile the various benefits of employees at food service operation
  • Understand the implementation of monetary and non monetary benefits among employees

Introduction

 

Most managers spend time searching for ways to create a motivational environment where employees work at their optimal levels to accomplish company objectives. Workplace motivators include monetary and non-monetary incentives. Monetary incentives can be diverse while having a similar effect on associates, such as company health insurance programs. The purpose of monetary incentives is to reward associates for excellent job performance through money, including profit sharing, project bonuses, stock options and warrants, scheduled bonuses, and additional paid vacation time. Traditionally, these have helped maintain a positive motivational environment for the employees. The purpose of non-monetary incentives is to reward as-associates for excellent job performance through opportunities, including flexible work hours, training and education, pleasant work environment, and sabbaticals.

 

Monetary

 

Monetary incentives reward workers for performance and productivity through money. These incentives include employee stock options, profit sharing plans, paid time off, bonuses and cash awards. Additional monetary incentives include annual or semi-annual bonuses, such as mid-year and end-of-year rewards. These incentives encourage friendly competition between associates when linked to job performance. Monetary rewards motivate employees to produce optimally.

 

Non-monetary incentives reward employee performance through perks and opportunities. These rewards include flexible work hours, training opportunities and the ability to work independently. The rewards and incentives are valuable to an employee because they allow workers to learn new skills and pursue advancement opportunities. For example, a recent graduate may view an exemplary training program within an organization as more valuable than a higher base salary because he feels the learning opportunity will benefit his career.

 

Basic Purpose for Establishment of a Sound Compensation and Reward Administration

 

The basic purpose of establishment of a sound compensation and reward administration is to establish and maintain an equitable compensation structure. Its secondary objective is the establishment and maintenance of an equitable labor-cost structure, an optimal balancing of conflicting personnel interests so that the satisfaction of employees and employers is maximized and conflicts minimized.

 

A sound wage and salary administration tries to achieve these objectives a. For employees

 

1. Employees are paid according to requirements of their jobs,

i.e., highly skilled jobs are paid more compensation than low skilled jobs. This eliminates inequalities.

2. The chances of favoritism (which creep in when wage rates are assigned) are greatly minimized.

3.  Job sequences and lines of promotion are established wherever they are applicable.

4. Employees’ morale and motivation areincreased because a wage programme can be

 

explained and is based upon facts.

 

b. To Employers

 

1. They can systematically plan for and control their labor costs.

2.In dealing with a trade union, they can explain the basis of their wage programme because it is based upon a systematic analysis of job and wage facts.

3. A wage and salary administration reduces the likelihood of friction and grievances over wage inequities.

4.It enhances an employee’s morale and motivation because adequate and fairly administered wages are basic to his wants and needs.

5. It attracts qualified employees by ensuring and adequate payment for all  the jobs.

 

Different types of compensation to the employees

 

•  Base Pay

•  Commissions

•  Overtime Pay

•  Bonuses, Profit Sharing, Merit Pay

•  Stock Options

•  Travel/Meal/Housing Allowance

 

Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes… Compensation and rewards Compensation or rewards (incentives) can be classified into

 

1.Direct compensation and

2. Indirect compensation.

 

Money is included under direct compensation (popularly known as basic salary or wage, i.e. gross pay) where the individual is entitled to for his job, overtime-work and holiday premium, bonuses based on performance, profit sharing and opportunities to purchase stock options.

 

While benefits come under indirect compensation, and may consist of life, accident, and health insurance, the employer’s contribution to retirement (pensions), pay for vacation or illness, and employer’s required payments for employee welfare as social security. While French says, the term “ Incentive system” has a limited meaning that excludes many kinds of inducements offered to people to perform work, or to work up to or beyond acceptable standards. It does not include:

 

1. Wage and salary payments and merit pay;

2.Over-time payments, pay for holiday work or differential according to shift, i.e. all payments which could be considered incentives to perform work at undesirable times; and

3.Premium pay for performing danger tasks.

 

It is related with wage payment plans which tie wages directly or indirectly to standards of productivity or to the profitability of the organization or to both criteria. Compensation represents by far the most important and contentious element in the employment relationship, and is of equal interest to the employer, employee and government.

 

1.To the employer because it represents a significant part of his costs, is increasingly important to his employee’s performance and to competitiveness, and affects his ability to recruit and retain a labor force of quality.

2.To the employee because it is fundamental to his standard of living and is a measure of the value of his services or performance.

3.To the government because it affects aspects of macro- economic stability such as employment, inflation, purchasing power and socio – economic development in general.

 

While the basic wage or pay is the main component of compensation, fringe benefits and cash and non-cash benefits influence the level of wages or pay because the employer is concerned more about labor costs than wage rates per se. The tendency now is towards an increasing mix of pay element of executive compensation has substantially increased in recent years.

 

Methods of Compensation

 

The operating companies need to develop a compensation package for their employees depending on the size and type of business, employers may choose to compensate their employees in a number of different ways. Below is given the different methods of compensation: 1. Wages and Salaries

 

Although we use the terms wages and salaries interchangeably in payroll accounting, the two terms have different definitions. Wages refers to the earnings of employees whose pay is calculated on an hourly basis. Salary refers to the earnings of employees whose pay is calculated on a weekly, bi-weekly, semi-monthly, or monthly basis.

    2. Commissions

Sales commission plans vary greatly from company to company,but are generally based on the amount of sales made during a payroll period. Commission income is considered the same as wages or salaries for withholding and reporting purposes. Commissions are usually computed on a certain percentage or commission rate.Some commissioned employees may not be exempt from the minimum wage requirement. The employer must determine the regular, hourly rate for each non-exempt salesperson during the week and make sure this rate is at least equal to the current minimum wage.

 

3. Piece-Rate Plan

 

Workers paid on a piece-rate plan receive a certain amount for each item produced. Gross earnings equal the rate per item multiplied by the number of items produced during the payroll period

 

4. Combination Plan

 

Many businesses pay sales people both a salary and a commission. Such a combination plan provides some regular income and offers an incentive for superior sales.

 

5. Draws

 

Draws are often given to salespeople who work only for commission. A draw is an advance given to a salesperson that will be collected when future sales transactions are closed. Draws will be subtracted from a salesperson’s commissions after any applicable taxes and deductions have been withheld. The draw is subject to all payroll withholding taxes.

 

Other Types of Earnings

 

6. Bonuses

 

Businesses offer bonuses in many different ways. Some bonuses are based on profitable operations of the business and are paid at year-end. A common type of bonus may be offered to salespeople for selling a specific item. Another type of bonus plan, one that may be part of an employment agreement, pays managers if the yearly sales or profits reach a certain level.

 

7. Profit Sharing Payments

 

A profit sharing plan, like a bonus plan, can be structured in a number of different ways. An employer may elect to pay cash to employees, give them stock in the business, or set up a deferred compensation fund for retirement.

 

8. Other Taxable Forms of Compensation

 

Sometimes other payments to employees are required that are equivalent to wages. These include non-cash fringe benefits, reimbursed expenses, sick pay, supplemental unemployment

 

9. Non-Cash Fringe Benefits

 

Non-cash fringe benefits must be included in an employee’s gross earnings. Fringe benefits include the following:

 

•  Personal use of company cars

•  Free or discounted airline flights

•  Vacations

•  Discounts on property or services

•  Memberships in country clubs or other social clubs

•  Tickets to entertainment or sporting events

 

10.  Reimbursed Expenses

 

Payments made to employees for travel and other necessary business expenses are taxable only if: The employee does not have to substantiate those expenses with receipts or other documentation. The employer advances an amount to the employee for business expenses and the employee does not return any unused amount. Travel and entertainment reimbursements, or other expense allowances, paid to an employee under a non accountable plan are also included as wages. Under a non-accountable plan, the employee is given a certain amount of money toward expenses, but does not have to substantiate them or return any excess cash. Under an accountable plan, travel advances paid to the employee prior to travel in excess of substantiated expenses must be repaid to the employer within a reasonable and specified period of time.

 

11. Sick Pay

 

In general, sick pay is any amount paid to an employee because of illness or injury under a plan providing for such benefits. The amounts are disbursed by the insurance company or the employee’s trust, and are referenced as third party payments.

 

12. Tips

 

In certain businesses, employees receive compensation in the form of gratuities or tips. A tip is an additional amount from a customer for services rendered. Bartenders and restaurant servers usually receive tips in addition to wages. Hair stylists and taxi drivers also depend on tips as a major source of income.

 

13. Supplemental Wages

 

Supplemental wages differ from regular wages only in that they may be based on a different payroll period, computed on a different compensation plan or rate, or paid at a different time than regular wages. In addition, certain payments are, by their nature or timing, supplemental wages. Such payments include retroactive pay increases, severance pay, bonuses, commissions, taxable fringe benefits, awards and vacation pay on termination. The distinction between regular and supplemental wages is important because special rules apply to withholding on supplemental wages.

 

14. Exempt Payments:

 

Compensation not considered wages includes sickness and injury payments under a workers’ compensation law, and other payments that are likely to be tax deductible such as qualified moving expense reimbursements. Money received or paid usually for work by the hour, day, or week, or month; a calculation or statement of money earned for a period of time from one hour (hourly wage) up to one year (annual wages).

 

Advantages of the compensation

 

Employee incentives can generate healthy competition between individuals or teams of employees within a company. If only a certain number of employees receive incentives based on individual or group performance, that can make everyone work harder, if the incentive is compelling enough. Concurrently, commission schemes, which are another type of incentive, can spur sales staff to work smarter and harder, because a significant portion of their pay depends on performance incentives.

 

Disadvantages of the compensation

 

In a perfect meritocracy, where the employees who work the hardest always reap the most rewards, incentives pose little problem. But no companies operate in an ideal world and thus incentives can breed resentment and discord among teams and employees. While it’s easy to quantify a salesman’s performance, it is harder to quantify a staff writer’s contribution to the department, even if the writer is adding just as much value to the company. That can lead those under an incentive scheme to feel unappreciated or the recipients of unfair treatment.

 

Conferences

 

Companies that rely on employees staying on the cutting edge of technological or industry advances offer non-monetary compensation by way of conferences, seminars or workshop training. A few days away from the office at a high-tech conference where your travel, hotel, food and entertainment costs are covered by the company is a non-monetary form of compensation. In such instances, you not only get out of the office for a few days, but you get to travel and learn new things.

 

Flex Schedules

 

Flex schedules are one of the easiest ways to entice employees without adding compensation. Maybe you’re an early riser and like to get off work early. A company that lets you start your day early, work only four days a week, 10 hours a day or offers a three-day weekend twice a month is a perk that can’t be turned down. A flex work schedule comes in handy as to take care of family’s needs and hold down a job at the same time.

 

Furthermore the other monetary benefits to the employees include Expansion of Course Fee Waivers for the children, Employee Assistance Program , Adequate and Affordable Health Care Benefits , Short-Term Family Leave and Disability Benefits , Expanded and Formalized Flextime Options ,Adequate Salaries , Accessible Affordable Child and Adult Care and Partner Benefits and non Monetary Benefits include Enhanced Communication , Supervisor Training and Consistency ,Respect and Appreciation of Work Contributions and accessible and confidential grievance structures . These will enable the employees to create a self belongingness with the industry and give the best performance at work place.

you can view video on MONETARY AND NON MONETARY BENEFITS

Web references

 

 

Book References

 

  1. William J. Rothwell and H.C. Kazanas, 2006, Planning and Managing Human Resources, 2nd edition, Jaico Publishing house, Delhi
  2. Aquinas P G, 2009, Human Resource Management Principles and Practice, Vikas Publishing House Pvt ltd, New Delhi
  3. Durai P, 2010, Human Resource Management, Pearson Publications, New Delhi
  4. Dyche Jill, 2003, The CRM handbook, Pearson Publications, New Delhi

 

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