The Basics you need to know about Indirect Compensation

Indirect compensation is a type of pay or benefit that is not directly related to an employee's base salary or wages. These types of benefits are typically provided to employees as part of their overall compensation package, and can include things like health insurance, retirement savings plans, and paid time off.

Indirect Compensation is also known as employee benefits. This differs from company to company and can range from sick leaves, maternity leave, paid vacations, company vehicles, overtime pay, fuel expenses, and so on. All of these additional benefits make a job role more alluring to applicants.

This is a refreshingly new concept recently inculcated in the modern-day work culture. These benefits increase employee retention, motivation, and loyalty and provide security. The total amount of money employers spend on indirect compensation grows yearly, and the value of a job generally increases as the employer offers more or better fringe benefits.


Examples of Indirect Compensation

Indirect Compensation is considered to play an essential role in retaining employees who are more likely to choose a company that offers larger benefits than its competitors. Below are some examples to know more about what comes under Employee Benefits.

Insurance Benefits- Health, Life, Disability, etc.

Retirement Plan

Stipends and Commissions

Student Loan encouraging Higher Education

Paid Leave and Sick Leaves

Usage of Facilities such as Gym, Cafeteria, Gaming Zones, etc.)

Company Laptops and Cell Phones


Benefits of Indirect Compensation

1. Attract a Skilled and Talented Workforce

While applications do their best and showcase their skills to why they should be hired, Companies need to work on the same moral. This is where Indirect Compensation comes into the picture. Apart from the overall package, an employee considers the add-on benefits that come along with it. 

Suppose you offer medical insurance, Gym Facilities, Paid Leaves, and other commissions based on their work. In that case, they are more likely to join the company than move on with other offers that only bring in a salary package.

2. Employees Retention

Apart from attracting new employees and young talents, retaining the already excellent employees is much more important. Any organization can introduce better employee benefits at the time of hiring and once the Employee has completed a certain period in the company.

This boosts the employee's morale to stay in the company for a longer time, and the young talents look up to working harder to gain those benefits in the future. For example, a minor salary hike, vacation leaves, bonuses, etc., can make employees feel valued.

Indirect Compensation- Why does it matter?

Although we know the benefits of Indirect Compensation, it is only from a company’s point of view. To understand it from an employee’s point of view, it is important to understand why does it matter? And what impact will it have on people’s lives?

1. Ensures Work-Life Balance- Most employees switch jobs because they cannot manage long working hours without benefits.

2. Keeps in check with Mental Health- Apart from physical health, paid leaves and being paid for extra working hours help improve the mental health of employees drastically.

3. Proper Retirement Plans- Most employees currently have no retirement plans, considering the Recession and the Pandemic that hit us. Understanding your audience and adding a retirement plan will attract talent.


Indirect compensation can be an important part of attracting and retaining top talent, as it can provide additional value and support for employees beyond their base salary. Indirect compensation can also help to create a positive work environment, which can improve morale and motivate employees to perform at a high level. In a nutshell, this means valuing your employees for who they are, not just for what they can do for the company or any project.

Find out how Compport can help you manage all your Compensation process, book a demo today!

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