What is a total compensation statement?

Total compensation statement

A total compensation statement is a document showing the whole value of the compensation an employee receives in exchange for their work. Distinct from a pay stub, a total compensation statement doesn’t just show wages or salary payments. The document also includes other types of direct compensation, such as bonuses or commissions, and the employee’s indirect compensation, such as health insurance benefits and 401(k) matching. 

Purpose of total compensation statements

The purpose of creating and sharing total compensation statements is to provide employees with a complete overview of their compensation package. Employees are generally aware of the other compensation types beyond wages or salaries. Still, seeing this information all in one place can be enlightening and give them a better picture of all the compensation they receive. Typically, employers only send these statements to employees once per year.

Employers are not legally required to share total compensation statements, but doing so can benefit their businesses. When employees can easily see the full value of their compensation, they may experience a boost in morale and feel more loyal to the company. 

What to include in a total compensation statement

Employers should include in the total compensation statement any compensation they offer to employees. Some key items that will appear on almost all of these statements include:

  • Hourly pay/salary
  • Overtime pay
  • Paid time off (PTO) such as sick leave, vacation, and personal time
  • Commissions, bonuses, and any other incentive pay
  • Insurance benefits such as medical, vision, life, and dental
  • Retirement plan contributions

Total compensation statements are not limited to these more common items, however. All forms of compensation the employer provides belong on the statement. Other items that may appear on the statement include:

  • Education benefits
  • Legal assistance
  • Relocation assistance
  • On-site childcare
  • Health savings accounts
  • Stock options
  • Pet insurance
  • Fitness or wellness programs
  • Company vehicle
  • Company-provided mobile phone
  • Career advancement opportunities

Even if the employee does not receive the compensation as a direct payment, it should still appear in the document. For example, on-site childcare is a benefit more companies are choosing to offer employees. Employers should record the value of this benefit in the total compensation statement even though the employees who use this benefit don’t receive any money directly. 

How to create a total compensation statement

To create their own total compensation statements, employers should start by outlining the types of compensation they offer employees. They must review all the compensation options, from base hourly wages or salary to indirect compensation, such as tuition reimbursement and relocation assistance. 

Once the employer has a list of all the different types of compensation they offer, they should sort them into categories. A total compensation statement typically breaks down into the following categories:

  • Direct compensation (such as wages, salary, or bonuses)
  • Indirect compensation (employer-paid benefits such as 401(k) matching and health insurance coverage)
  • Totals

The next step is customizing each statement to each employee. Generally, no two employees will have identical total compensation statements. It’s necessary to adjust the company’s base statement according to each employee’s compensation. 

Finally, the employer must distribute these compensation statements. The first time an employer shares these statements with employees, it’s worth explaining the document and why it matters. 

Examples of total compensation statements

It may be helpful to consider some examples of total compensation statements, such as the ones below:

Example 1

Regular pay: $45,250

Overtime pay: $12,000

Paid time off: $8,750

Health insurance: $10,000

Vision insurance: $4,000

Total: $80,000

Example 2

Base salary: $82,000

Paid time off: $12,000

401(k) contributions: $5,500

Medical insurance: $9,000

Disability insurance: $2,500

Pet insurance: $3,000

On-site childcare: $8,000

Total: $112,000

Notice that the individual components of the example total compensation statements may change, but they both include several components of employee compensation as well as a sum of all the components at the bottom. 

Actual documents may include a total compensation statement introduction or a cover letter to explain the contents. This introduction is not necessary, but may be useful for framing the document and helping employees understand its purpose.

About Oyster

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