Do you know there are multiple ways to get paid for work? You may not know about it as in the world of corporate, fixed compensation is mostly used. But many companies use another method called variable compensation which is mostly seen in fields like sales.
What is Fixed Compensation?
To start with, fixed compensation’s meaning is a fixed salary that an employee gets each month for working in an organization. As its name suggests, it remains the same for an employee each month, no matter how much the employee has worked. However, the deductions can be made if the employee takes extra time off or leaves other than the paid leaves.
Now, a fixed salary has multiple components that includes base salary, HRA, Conveyance allowance and many more. There are multiple benefits of fixed salary which is why it’s one of the commonly used types of pay structure used by organizations.
Benefits of Fixed Pay
Now that you know what fixed Pay is, let’s look at its Benefits:
- The fixed salary is always credited on time, which is mostly around the 1st to 10th of every month or on the date that the company has decided. So, there’s no performance penalty that an employee may have to face, making the employee feel secure for his/her expenses.
- The payroll calculation remains very simple and has no jargon. The payslip simply involves the base salary and other components, which makes tax filing easier as well.
- Employees also like this pay method because it secures them from the economic downturn. Mostly, the workload sheds off the shoulders of employees during economic downturns, but the salary remains the same.
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What is the Difference between Fixed and Variable Salary?
Now, apart from fixed salary, there is another pay method called variable salary. The difference between Fixed and variable salaries is exactly what their names are. While a fixed salary remains the same each month, the variable salary can be different each month. This is because the variable salary is offered as an incentive-linked Pay. This means that the employees are paid based on their performance, which is calculated using pre-defined metrics.
For instance, if there’s a bank which reimburses variable salary to its employees in slaes department then the metric can be the sales. Hence if an employee closes more deals like opening savings account, he will be paid more than the one with lesser deals closed.
So, there are a few things that make it a good deal for employees. Let’s say an employee is able to close more deals a month than he will surely earn. But this scenario in a fixed salary position will give him no benefits. However, a variable salary in an economic downturn can be a con due to less work available to do.
To Sum Up
This is what fixed Pay means and how it differs from variable Pay. These two methods of getting paid by an organisation have their own set of pros and cons. However, the fixed pay method is infamous as it is more secure for the employees. On the other hand, the variable Pay has more opportunities for the employee but isn’t a safe choice in situations like an economic downfall.
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