What is Additional Pay? Meanings, and Examples

What is additional pay?

Additional pay is any extra money an employee gets beyond their usual salary or hourly wage. This includes various earnings, such as overtime for working more than scheduled hours, bonuses, commissions, compensation for extra duties, pay for working specific shifts (like nights or weekends), or money for unused vacation days or sick leave.

How does additional pay work?

As mentioned above, additional compensation works as a form of compensation given over and above an employee's base salary or hourly wage. This could be in the form of overtime pay, bonuses, or allowances. For example, if an employee works more than their standard working hours, they may receive overtime pay, which is typically a higher rate than their regular pay.

Similarly, a bonus might be given for exceptional performance or meeting certain targets. Commissions, on the other hand, are typically given to employees in sales roles and are based on the amount or value of products or services they sell.

These incentives are commonly included in performance-based merit increase programs. With Compensation Software, you can easily model the cost of these programs and create merit matrices based on performance and range placement or market index.

Why should organizations issue additional pay?

Organizations typically provide additional compensation in the form of bonuses or incentives to their employees for a few reasons:

• To incentivize performance: Giving employees additional pay for doing well can make them work harder, which can help the business do better.

• To retain employees: Giving employees extra pay can make them feel valued and encourage them to stay with the company.

• To recognize special achievements: It can be given to employees who do something exceptional, like surpassing sales goals or finishing a big project.

• To comply with labor laws: Some laws or agreements may require companies to give extra pay for things like working overtime or on holidays. Following these rules helps companies avoid legal issues and fines.

• To compensate for the cost of living: In some cases, companies give employees more money to help them deal with higher living costs. This can keep employees happy and prevent them from leaving.

Compensation Software helps you manage pay across locations, predict compensation in target markets, understand cost of living impacts, and compare job compensation across your organization's pay markets.

Base pay vs additional pay

The difference between base pay and additional compensation is that the former is the guaranteed salary for a set period, while the latter includes bonuses, overtime, commissions, and other perks on top of the base.

	Base salary	Additional pay
Stability	Stable	Variable
Predictability	Predictable	Less predictable
Importance	Primary compensation	Supplemental
Tax Treatment	Standard income tax rates	May vary
Longevity	Increases with experience	Can fluctuate
Variability	Stable unless job changes	Can vary widely

Additional compensation examples

Here are some common examples of additional compensation:

Back pay

Back pay is money owed to an employee for work they did but weren't properly paid for. It could be due to an error, new wage laws, or a legal claim.

Bonuses

Bonuses are additional compensation given to employees based on performance. They're on top of the regular salary and are not guaranteed, depending on how well the employee performs or how successful the company is.

Severance pay

Severance pay is compensation given to an employee when they're laid off or the company closes. It's considered additional pay because it's not part of their regular pay.

Commission

Commission is additional compensation for sales employees based on their sales volume. It's a bonus for exceeding sales goals and generating revenue for the company.

Accrued leave

Accrued leave is earned time off that an employee hasn't used yet, such as vacation, sick, or personal days. It's valuable compensation because it allows employees to take time off without losing pay.

Allowances

Allowances are fixed-sum payments for employee expenses like travel, meals, or cellphone usage. They're additional compensation on top of base salary, helping employees cover work-related costs.

FAQs

Below are some common questions about additional compensation:

How do you calculate additional pay?

Calculating additional compensation depends on the type. Overtime pay is usually a multiplier of your hourly rate (often 1.5x or 2x). Commissions are a percentage of your sales, and bonuses can be fixed or based on performance.

How can employees qualify for additional pay?

Employees can earn additional compensation by working overtime, surpassing sales targets, meeting performance goals, working evenings, weekends, or holidays, or incurring job-related expenses.

Is additional pay guaranteed?

In most cases, additional pay, such as bonuses or commissions, is not guaranteed and depends on various factors, such as performance, company profits, or meeting specific goals. But certain types, like overtime for hours worked beyond the standard week, might be guaranteed by labor laws or contracts.

When is additional pay required by law?

In the US, additional pay is required by law for employees who work more than a standard number of hours in a week, typically 40. This is known as overtime pay, and the minimum rate is time and a half your regular pay. There are also laws mandating minimum wage for all hours worked.

Also, it's worth noting that extra pay for working weekends or nights is typically agreed upon between the employer and the employee (or their representative). The FLSA does not mandate overtime pay for work on weekends, holidays, or regular days off, unless overtime is worked on those days.

Speaking of minimum wage, Compensation Software helps you track minimum wage changes across the United States. The tool provides up-to-date data on minimum wages set by states, cities, counties, and municipalities.