Indirect Compensation - Meaning, Components & Example

Published in Human Resources Terms by MBA Skool Team

What is Indirect Compensation?

Indirect compensation refers to the non monetary benefits provided to the employees by the organization they serve. Indirect compensation is not paid directly to the employee. It is calculated as an additional component to the base salary figure. Indirect compensation includes everything from legally obligated health insurance to child care, social security etc.

Compensation means the monetary benefits provided to the employees of an organization. Sometimes, instead of giving money, monetary benefits are provided indirectly as a part of compensation and benefits.

Components of indirect compensation

The various components of the indirect compensation for the employees may be:


•Leave Travel

•Leave Policy

•Retirement Benefits

•Flexible timings


•Overtime Policy

•Holiday Lodges

Examples of indirect compensation

Some examples highlighting compensation given indirectly are mentioned below:

Insurance: This covers life and accidental insurance.

Leave Travel:  This includes travel allowances and leave allowances for holidays

Leave Policy: This includes sick leave, casual leave, maternity leave and other leaves which an employee is entitled to.

Retirement Benefits: This includes pension allowances and other old age benefits

Flexible timings: This includes the option to come to office at timing apart from normal office hours in case of emergency and personal problems.

Hospitalization: This includes medi-claims and other health benefits, claims of medical check up and medication expenses and more.

Overtime Policy: This includes being paid for working beyond normal office hours for their service and associated facilities.

Holiday Lodges: This includes access to company guest house and guest quarters on company visits or holidays.

All these summarize indirect compensation which can be given to employees by an organization.

Hence, this concludes the definition of Indirect Compensation along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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