Question

What are various components of compensation of employees?

Mention the components of compensation of employees.

Answer 1

Compensation of employees refers to the total payment made by producers to workers for the work done by them, whether in cash or kind, and also includes employer contributions to social security schemes. 

It includes three components:

1. Wages and Salaries in Cash: Basic pay, bonuses, commissions, dearness allowances, house rent allowance, travelling allowance (TA) to travel to and from the workplace, leave travel concession (LTC), sick leave allowance, etc. Take note that TA that has to do with business is not included.
2. Employer’s Contribution to Social Security Schemes: Supplementary labour income includes employers’ contributions (not employees’) to social security schemes like pensions, provident funds, gratuities, and insurance. These are part of compensation of employees in national income as they are considered deferred wages.
3. Payment to employees in kind: Non-cash benefits like rent-free accommodation, free meals, free medical and educational services, uniforms, transport, and other employee perks.

This component is a major part of labour income in national income accounting.