If you're looking for your first job, then you need to understand the difference between salary and remuneration. These two methods of payment affect your income and taxes differently. While one method is not more lucrative than the other – as this depends on your occupation – each offers benefits that may help or hurt you financially.
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Meaning of Salary
Your salary consists of your yearly gross pay (before taxes). Unlike wages, which vary if you're paid hourly, a salary is a defined amount of pay for one year. If you get paid by the hour, you earn wages. If you're a contractor, you earn a fee.
Your salary does not include the value of benefits, such as health insurance or your matching contributions to your 401(k).
Advantages of Salaries
If your employer pays an hourly wage, then you're eligible for overtime pay at the rate of time-and-one-half. For example, if your hourly rate is $10, then the rate for overtime is $15. However, with wages, you might only work 20 hours or 30 hours per week. You can't project your monthly income.
Employees working on straight salary, usually management, earn the same amount of money each pay period regardless of any overtime work. This provides an even monthly income. However, management may receive a significant bonus at the end of the year to help compensate for excessive hours.
Read More: The Tax Differences Between a Bonus and a Commission
Disadvantages of Salaries
Salaried employees are at the mercy of their boss as far as the number of hours worked each week. The can ask you to work evenings and weekends without extra pay. However, when business is slow and the shop closes early, salaried workers still receive a full paycheck.
Definition of Remuneration
Remuneration includes all forms of employment compensation, such as free room and board, stock options, sales commissions and bonuses. It also includes your salary. If you get to keep your frequent flyer and hotel points when traveling on behalf of the company, the IRS doesn't consider that income unless you turn the points in for cash.
Read More: Is Reimbursement a Form of Compensation?
Advantages of Remuneration
Many sales people work on straight commission, which means they only earn money when they make a sale, rather than receiving a weekly salary. Additionally, top sales people receive perks that may include free trips, expense accounts and hefty performance bonuses.
Upper management in many corporations have stock options, bonuses and severance pay as part of their remuneration package. The value of these options may equal or exceed your yearly salary, helping to increase your personal wealth.
Disadvantage of Remuneration
The Internal Revenue Service (IRS) requires that you pay income tax on many types of remuneration, for example, if you drive a company-leased car, or if your employer pays your share of the Social Security tax.
Your employer places a monetary value on these types of non-cash incentives and includes the amount when reporting your income to the IRS. Some forms of remuneration, such as most company-paid health insurance plans, are not taxed.
Diane Perez is a writer who contributes to various websites, specializing in gardening and business topics, and creates sales copy for private clients. Perez holds a Bachelor of Science in education from the University of Miami.