What is remuneration?
Remuneration is an umbrella term—it refers to any type of pay or compensation that you give your employees for their work. It includes payments, such as salary, wages or commission, as well as non-monetary incentives, for example, a company car, accommodation or meals.
Remuneration packages
A remuneration package is a set of monetary and non-monetary compensation that you give your employees to reward them for their service to your business. Remuneration packages are based on a mutual agreement between you and your employee. This means you are reasonably free to structure the packages according to the needs of your business and your employees, as long as your employees agree.
However, when designing the package, there are certain legal matters you should be aware of. It must satisfy the minimum pay and conditions of employment in the National Employment Standards (NES), which are part of the Fair Work Act 2009. It must also be in line with the minimum wage under the modern award or enterprise agreement that covers your employees. In addition, it should align with the requirements in your employee’s contract. It’s important to note that the National Employment Standards are the minimum requirements. This means that any modern award, registered agreement or employment contract can only extend or expand on these standards.
What are the benefits of remuneration packages?
- Lower employee turnover : By offering compensation and benefits that make it worthwhile for your employee to stay with your business, you can reduce employee churn. Generally, employees are more likely to leave their job if they can get better remuneration for the same work at another business.
- Attract top quality candidates: Of course, it may not always be possible to offer more lucrative remuneration packages than your competitors. However, offering a range of benefits can help to attract talented candidates to your business.
- Remain competitive: Extra allowances, such as bonuses and holidays, can incentivise your employees to improve their performance. This can help your business meet the performance targets you have set and remain competitive with, or even surpass, your competitors.
- Improve your company culture: As important as a good salary is, employees are looking for more than just a pay check. Remuneration packages often offer various benefits, such as generous leave schemes, health and wellness benefits and childcare stipends. This can help to create a healthy company culture where the wellbeing of your employees is the central focus. In turn, this can also lead to lower employee turnover and higher productivity.
What does a remuneration package include?
A remuneration packages consists of base pay, mandatory benefits and non-mandatory benefits. Let’s look at each of these in detail.
Base pay
This is your employees’ earnings before compulsory superannuation or any employee benefits. Depending on the job, there are various forms of remuneration, including:
Salary: This is a fixed, regular payment that your employees receive. Employees on a salary are contracted to work a set number of hours per week and receive the same fixed payment even if they work additional hours. They aren’t entitled to benefits such as overtime pay or penalty rates. Salaries are generally paid monthly or fortnightly.
Wages: This is a form of remuneration that is usually paid on an hourly or daily basis. Employees receive a base rate of pay and in addition, they may be entitled to overtime pay, penalty rates, loadings and allowances, depending on the job they do, when they work and how they are engaged by the business.
Commission: When employees are paid on commission, the amount they receive is based on their results, generally how much they sell. Commission is typically calculated as a fee or percentage of the employee’s total sales. The commission payment may either be an extra amount on top of the employee’s base pay or it could be their entire wage if they are paid on a commission only basis. You can only pay your employees on a commission only basis if the modern award, enterprise agreement or other registered agreement allows it.
Piece rates: With this form of remuneration, employees get paid for every piece, item or task they complete. For example, the ‘piece’ might refer to the amount of fruit picked or the number of items packed within a set time. Generally, piece rates are paid instead of an hourly, daily or weekly wage, although there are exceptions in certain industries.
Mandatory benefits
These are benefits that Australian employees are entitled to receive as standard:
Paid leave: As a minimum, all part-time and full-time employees in Australia are entitled to four weeks of annual leave per year, paid at the employee’s base rate of pay. Eligible parents are also entitled to 18 weeks of parental leave paid by the Australian government at the national minimum wage. To attract talent, you could offer more generous paid leave. Some leading organisations offer up to 26 weeks (6 months) of gender-neutral paid parental leave. Another form of mandatory paid leave is personal sickness and carer’s leave. Employees are entitled to 10 days of personal sickness and carer’s leave per year of employment.
Employer superannuation contribution: On top of your employees’ salary and wages, you must make a compulsory contribution to their super fund of 10.5 percent of their ordinary time earnings. This compulsory contribution is known as the Superannuation Guarantee (SG).
Flexible working arrangements: Under the Fair Work Act, any eligible employees who have worked in your business for at least 12 months are entitled to request flexible work arrangements. Aside from this obligation, offering your employees flexibility in their work can help you to attract and retain staff. Flexible working arrangements that have become popular in recent years are remote working (employees work outside of the main office, for example, in their homes) and hybrid work (employees can split their time between working remotely and working in the office).
Non-mandatory benefits
Remuneration packages also include a broad range of other monetary and non-monetary benefits. Offering your employees a variety of benefits can help you to attract and retain employees. Here are some for you to consider:
Salary packaging: Also known as salary sacrificing, this is an arrangement where you take money out of your employee’s pre-tax salary to pay for benefits and they receive a lower after-tax income. This reduces their taxable income, meaning that they may pay less income tax. You can offer your employee a range of salary packaged benefits from a car, health insurance and childcare fees to electronic devices, computer software, tools and superannuation. Salary sacrificed superannuation contributions must be paid on top of the compulsory superannuation guarantee.
Profit sharing: With a profit share scheme, your employees can receive a certain percentage of your business profits and a share of the profits if your business is sold. This can help to encourage commitment to the company’s success and employee retention, as employees only receive their share of the profit if they stay with the business for a specified period. For example, you might pay a total of 5 percent of your profits at the end of the year to the employees who stayed with your business throughout the year.
Bonuses: These are payments that you give your employees on top of their base pay as a reward for good performance. Bonuses can be awarded to individual employees or a whole team and they are often paid after a successful project, quarter or year. While some high-level executives receive incentive bonuses worth up to half their salary, annual bonuses in Australia are typically between 6 and 10 percent.
Company car: You could give your employees a company-financed car and/or fuel or a car allowance. Or another option is to allow your employees to lease a car through salary packaging.
Health insurance: You might consider offering a discount for health insurance from a particular provider.
Childcare subsidies: To help parents manage work and childcare duties, you could offer a subsidy for childcare or consider providing on-site childcare facilities.
Health and wellness: To promote your employee’s health and wellbeing, you might offer to contribute to the cost of health, fitness and mental health activities. For example, you could offer discounts on or reimbursements for gym memberships.
Commuter allowance: If your employees have to commute long distances to work, you might consider providing a commuter allowance. For example, you could give your employees a driving or public transport allowance.
