What Is Included in Direct Compensation?

A group of smiling corporate employees
A group of smiling corporate employees (Image: Ridofranz/iStock/Getty Images)

Employees may receive both direct and indirect compensation as part of their salary packages. Direct compensation is any pay regularly and directly made to an employee; indirect compensation covers benefits that may be part of the employment contract.

Wages and Salary

Direct compensation includes salary and wages paid. This includes contractual pay, overtime, commissions, payment for unscheduled time, workers' compensation payments and any retroactive pay.

Holidays and Leave

Payment for holidays and leave is also included in direct compensation. Leave includes sick time, funeral leave, maternity leave, military duty or other paid time away from work.


All forms of bonuses are included in direct compensation. These include bonuses for performance, longevity, signing and others.

Other Allowances

Other paid or reimbursed allowances are included in direct compensation, including travel and meals and some medical care when it is paid by the employee and reimbursed.

Indirect Compensation

What doesn't fall under direct compensation is indirect compensation, of which the employee is the beneficiary, but does not receive directly. Such compensation includes contributions to retirement accounts, tax contributions, and medical and other forms of insurance.

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