Salary and Compensation: A Comprehensive Guide to Your Paycheck

Salary and Compensation: A Comprehensive Guide to Your Paycheck

Salary and compensation likely play an outsized role in why you accept a job offer and whether or not you stay with the company long-term. But salary and compensation are more than just how much money you bring home every week. Salary is only a tiny piece of the puzzle, but “compensation” complicates the entire picture!

Here’s what you need to know about salary and compensation at your job.

What Is Salary?

The dictionary definition of salary is “fixed compensation paid regularly for services.” In a nutshell, that means you work and get paid for it on a set schedule.

Don’t confuse “salary” with “salaried,” though. When we talk about salary, we are strictly talking about your pay. When we talk about “salaried,” that refers to a status defined by the Fair Labors Standard Act (FLSA). Salaried employees are generally exempt from overtime rules (among other things).

When you think about workers who are eligible for overtime, you probably think of hourly workers. And in most cases, you’d be right. However, hourly workers also earn a salary—their pay. They often aren’t “salaried,” meaning they are nonexempt and usually entitled to overtime pay after working 40 hours each week.

What Is Compensation?

Compensation, on the other hand, includes many things. While your compensation includes your salary, it also includes other items your employer gives you in exchange for your labor. Compensation can include:

This is not an exhaustive list, as many things that can fall under the “compensation” umbrella.

Pay Schedules

As part of your employment, you are paid “regularly.” Regularly, though, is up to your employer to define. This is known as your pay schedule, and the pay schedule determines when payday is.

There are a few typical pay schedules:

  • Weekly: payday is once per week on a specific day (like every Friday)
  • Biweekly: you’re paid every two weeks on a specific day
  • Semi-monthly: payday is twice a month on two specific days (like the 15th and 30th)
  • Monthly: you’re paid once a month, the same day every month (like the 15th)

Though technically, your employer can pay you on a schedule outside of these, many states have minimum requirements for how often employees must be paid.

Pay Periods

Pay periods are different from payday and a workweek.

A pay period is the specific timeframe you earned your wages. Paydays and pay periods are often connected and can influence how much you receive on a check.

For example, if your employer pays weekly on Friday but you start a new job on a Wednesday, you won’t be paid for Monday or Tuesday, resulting in a smaller check. Likewise, if your employer’s pay period is the first through the 15th of the month and they only pay once a month on the 30th of every month, each paycheck will include the pay from the last half of one month and the first half of the next.

The pay period is also different from a workweek. The Department of Labor (DOL) states that a workweek is “seven consecutive 24-hour periods.” That translates to 168 hours total in a workweek. Put another way, a workweek is seven days in a row!

However, a workweek doesn’t have to be Sunday through Saturday. Your employer can define a workweek any way it wants as long as it’s consistently seven consecutive days. And once you’re working more than 40 hours per workweek (not pay period), you’re entitled to overtime pay, which is unrelated to how many hours you work in a pay period.

Know Your Paycheck

When you receive your paycheck, you’ll notice that what lands in your bank account doesn’t add up to your total salary. What you start with (gross pay) is different from what you actually receive (net pay), thanks to taxes and other deductions.

What Is Gross Pay?

Gross pay is your salary or the amount you earned in a given pay period as an hourly worker. If you’ve negotiated a set salary, your gross pay is the amount of that salary divided by the number of pay periods for the year. For example, if your salary is $12,000 a year and you’re paid monthly, your gross pay is $1,000.

If you’re paid per hour, your gross pay is your hourly rate times the number of hours you worked in that pay period ($10 per hour X 10 hours that pay period = $100 gross pay).

What Is Net Pay?

Net pay is what you take home after taxes and other deductions from your gross pay. What are some of these taxes and other deductions?

  • Federal and state tax withholdings
  • Social Security and Medicare taxes
  • Health insurance premiums
  • Retirement savings

These (and any other deductions) will appear on your pay stub as “withholdings” or “deductions.” Each deduction is listed with its name and the amount (retirement contribution, $50).

Other Types of Pay

Sometimes your paycheck is more than you’re expecting, and it’s not because there’s been a mistake! There are additional types of pay you can earn.


Nonexempt workers must be paid a premium of at least one and one-half times their hourly wage for every hour they work over 40 hours in a workweek. This premium does not apply to working Saturday, Sunday, or holidays unless that means you work more than 40 hours in a week.

If you’re a nonexempt employee but paid a salary (meaning, you are not paid per hour), you are still eligible for overtime pay. Your employer calculates your hourly rate based on your yearly salary, then pays you time and a half for every hour your work over 40.

Hazard Pay

An employer is not required to pay extra for working in a hazardous situation. However, your employer can choose to pay you additional compensation for working in this kind of situation.

Merit Pay

Merit pay (AKA a raise) is something your employer gives you for a job well done. This increases your overall salary no matter how you’re paid, and the additional pay becomes part of your salary. It’s then paid out over the course of the year as part of your regular pay.


A bonus is also something an employer gives you for a job well done. However, unlike a raise, the bonus is a one-time payment (even if you receive multiple bonuses throughout the year), and it does not change your salary.

Compensation and Your Paycheck

Unlike salary, compensation may or may not appear on your paycheck. For example, a bonus is often considered compensation, appears on your paycheck, and is generally taxed accordingly. Something like the employer’s contribution to pay for insurance or retirement does not appear on your paycheck.

Though it’s something the employee “earns,” many forms of compensation are not taxed by the government. However, these types of compensation may appear on a paystub because it makes recordkeeping easier for the employer.

Value Adds

Your total salary and compensation can add up to huge numbers when you put it all together. Before accepting any job offer, make sure you understand exactly what you’re getting and what it means for your bottom line.

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