How to Design a Compensation Statement

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HR or payroll software stores some of the information you need to prepare compensation statements.
HR or payroll software stores some of the information you need to prepare compensation statements. (Image: i_frontier/iStock/Getty Images)

To help employees better understand the value of their compensation and benefits packages, some employers provide annual compensation statements. The document includes direct payments to the employee such as base salary and incentive pay, and indirect compensation made by the employer, particularly employee benefits such as employer-paid health insurance. The statement should be accurate, informative, consise and easy to read.

Personal Data and Direct Compensation

At the top left corner of the blank document, write the employee’s personal information on separate lines. For example, write: “Employee Name,” “Date of Birth” and “Hire Date.” You can also state her Social Security Number or address, current salary or hourly pay, additional types of direct compensation such as overtime pay and bonus, and basic tax information such as marital status and number of dependents.

Paid Time Off

If you offer paid time off to your employees, create a “Leave” or “Paid Time Off” section. On separate lines, write the individual leave days the employee is entitled to. For example: “Accrued Vacation: 10 Days,” “Accrued PTO: 5 Days,” and “Holiday Leave: 6 Days.” State other types of leave, if applicable, such as bereavement days and jury leave. Then, summarize in one sentence the total value of paid time off allocated to the employee. When calculating the total value of paid time off, multiply the number of days by the employee’s regular rate of pay.

Types of Employee Benefits

Employee benefits come in many forms, besides paid time off. They also include health, life, disability and accident insurance; flexible spending accounts; retirement and stock plans; adoption assistance; an employee assistance program; tuition reimbursement; employee meals; a child care program; and uniforms. As an employer, you must pay federal and state unemployment taxes and Medicare and Social Security taxes, plus carry workers’ compensation if the state requires it. The employer’s portion of these benefits is usually hidden from the employee, who is generally only aware of his own contributions, which are reflected on his pays stubs.

Listing Your Contributions

If you provide only a few benefits, you can list them separately on the compensation statement. If you offer many benefits, to keep the document succinct, you may group them under related headings. For example, itemize all insurance benefits offered to the employee under one main “Insurance Benefits” heading. Then list your annual yearly contributions beside each type of insurance. To provide accurate information, you must know the value of each benefit plan and the amount you are responsible for paying. The more data you provide, the more valuable the statement; therefore, if possible, include the employee's contributions as well.

Total Compensation

Toward the end of the statement, write the employee’s total compensation, which should equal the sum of all the items you listed on the statement, including salary or wages. You will find that the employee’s total compensation far exceeds her annual salary or wages. You can also state the benefit amounts as a percentage of the employee’s total compensation, such as 30 percent of overall compensation.

Appearance and Tone Considerations

The statement can be a simple one-page document or several pages with graphics such as charts or colored columns. If you cannot afford the resources necessary to provide the latter, the former should work just fine. Regardless of the length and colorfulness of the document, avoid giving just bare statistics. Make the statement reader-friendly instead. For example, explain the purpose of the document before getting into details, encourage the employee to review it carefully and say whom to contact with questions or concerns. Assign a set time of the year for when employees will receive their statements and communicate that time frame to them in advance.

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