Direct compensation refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, Pf/Gratuity, etc. They are given at a regular interval at a definite time.
Salary is the amount received by the employee in lieu of the work done by him/her for a certain period say a day, a week, a month, etc. It is the money an employee receives from his/her employer by rendering his/her services.
HRA stands for House Rent Allowance, it is an allowance that almost every salaried employee receives as part of there salary package from there employer to meet the cost of rent that they pay for their home. In other words, HRA is a compulsory part of salary of an individual which every salaried person receives irrespective of the type of property he resides in. Which means, if your employer chooses to offer HRA then you will get this as part of your salary whether you stay in a rented house or reside in your own house. As being a taxable part of salary, HRA gets special treatment in income tax law and is exempt from income tax to a certain extent.
Organizations provide for cab facilities to their employees. Few organizations also provide vehicles and petrol allowances to their employees to motivate them.
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. Bonuses are compensation for employees for work performed; they are paid in addition to salary or wages. Bonuses are considered compensation if (per the IRS) they "arise out of an employment relationship or are associated with the performance of services." Bonuses are considered taxable to employees, but are considered an expense of doing business and are, in most cases, a tax benefit to the employer.
According to The Payment of Bonus Act 1965, in Indian organizations irrespective of profits or losses it is mandatory for payment of bonus to the Every employee (receiving salary or wages up to RS. 10,000 p.m). engaged in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work is entitled to bonus for every accounting year if he has worked for at least 30 working days in that year.
For employees Minimum payment of bonus is 8.33% and maximum bonus payable is 20% on the allocable surplus derived form available surplus of the organization. [Allocable surplus= 67% of the available surplus (other than banking companies) or 60% of the available surplus (banking companies and companies linked with abroad)]. This act exempts certain class of employers prescribed under [Section 32]of this act.
Other paid or reimbursed allowances are included in direct compensation, including ravel (including meals) and some medical care when it is paid by the employee and reimbursed.
Special allowance such as overtime, mobile allowances, meals, commissions, travel expenses, reduced interest loans; insurance, club memberships, etc are provided to employees to provide them social security and motivate them which improve the organizational productivity.