What are Total Compensation Statements?

The “Hidden” Paycheck

As an employer, it can be difficult to show an employee the full value of their benefits and compensation. Total Compensation Statements convey the total value of the company’s benefit offerings and employee’s compensation. They can be used to showcase to an employee their direct and indirect compensation. They highlight how much an employee earned in base salary or hourly wages and bonuses in a given time period (usually a year), but they also show the hidden costs of employee benefits and perks. It is common for an employer to prepare and distribute Total Compensation Statements to employees once a year, often at the end of the year or with their W-2.

The Difference Between “Direct” and “Indirect” Compensation

Direct compensation can be defined as “all compensation (base salary and/or incentive pay) that is paid directly to an employee.” Think of how money changes hands. If it goes straight from the company to the employee, it’s most likely direct compensation.

Indirect compensation can be defined as “compensation that is not paid directly to an employee and is calculated in addition to base salary and incentive pay.” Employees experience indirect compensation most often in the form of benefits or perks such as:

  • the employer-paid portions of health/dental/vision insurance
  • retirement benefits
  • educational benefits
  • relocation expenses
  • employee paid time off

The more detail an employer can provide, the more beneficial the Total Compensation Statement is as a retention and recruitment tool.

Using Total Compensation Statements to Recruit & Retain

While you are not required to provide employees with a Total Compensation Statement, it is HIGHLY recommended. They can be an essential retention tool, as employees may have no idea how much it costs to employ someone and have an expectation of benefits without comprehending the costs associated. They serve as a great reminder of the many benefits and indirect compensation they receive beyond what they see in their paycheck. As millions of Americans join in the “Great Resignation”, employers can combat losing valuable talent by showing them the benefits you offer. Using a Total Compensation Statment can also be a helpful recruitment tool when showing candidates what they receive above and beyond just pay.

Author: Arwyn Robinson – SHRM CP

Total compensation statements

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