Compensation and Benefits Terminology

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Payment to an employee based on hours worked.

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Wage

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Fixed regular payment, typically paid monthly or biweekly.

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Salary

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Earnings based on sales or performance.

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Commission

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Working independently rather than being employed by a company.

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Freelance

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Rewards offered by an employer to motivate or encourage employees to meet certain goals or performance levels. These can take many forms: bonuses, extra pay, recognition, gift cards, time off, etc.

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Incentives

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Non-wage compensation provided to employees, in addition to their salary or hourly pay. These may include health insurance, retirement plans, paid leave, life insurance, disability insurance, etc.

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Benefits

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A deduction made from an employee’s gross pay before taxes are calculated. Because it reduces the amount of taxable income, the employee pays less in income taxes, Social Security, etc. Examples: contributions to certain retirement plans, health savings accounts (HSAs), or payroll deductions for certain benefits.

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Pre-tax (deduction/contribution)

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A deduction or contribution that is made after federal/state/local income taxes have been applied. These amounts do not reduce taxable income initially, though under some plans (e.g. Roth retirement accounts) earnings may grow tax-free or withdrawals may be tax-free under qualifying conditions.

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After-tax (deduction/contribution)

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Employer-sponsored or individual programs designed to provide income in retirement years. Includes defined benefit pension plans, defined contribution plans (e.g., 401(k), 403(b)), hybrid plans, IRAs, etc. Virginia's state retirement system (VRS) is an example of a defined benefit plan.

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Retirement Plans

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A retirement or compensation benefit where an employer shares a portion of company profits with employees. Often refers to a profit-sharing plan where employers contribute extra amounts for employees' retirement accounts based on a formula.

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Profit Sharing