Fixed pay | Definition & allowances
Paying your employees a fixed salary is easy, right? All you have to do is issue each staff member the same amount every month. You don’t even have to deal with the hassle of calculating wages or overtime that you get with hourly workers… But that’s not the whole picture.
Although many employers prefer the straightforwardness of fixed pay, it’s not as simple as it seems. You need to understand all the different types of allowances associated with fixed compensation. Then, you must decide which fixed allowances to add to your employees’ basic pay to attract talent and reduce churn without going over budget.
But there’s no need to panic: this article on fixed pay will help you get started on or improve your processes. Here, you’ll find all the need-to-know information about fixed pay and the different types of allowances.
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What is fixed pay?
Fixed pay is the monthly salary companies guarantee their employees in exchange for their services. It includes basic pay and any additional allowances — like housing, childcare, or transport. The amount of fixed pay stays the same regardless of hours worked or individual performance.
Some of the main advantages associated with fixed salary are:
- Employees like the consistency of fixed pay
- Payroll is simpler to process
- There’s no need to calculate overtime
- Allowances attract and retain talent
But the drawbacks of fixed pay are that:
- People may dislike it when low-performing colleagues get the same pay
- Non-variable pay doesn’t incentivize better performance
- Allowances may affect your bottom line
Whether fixed or variable pay is better is a matter of debate, especially in the performance review vs. compensation discussion. In many cases, compensation structures contain both variable and fixed components. For example, employees can get paid a fixed annual salary and quarterly bonuses based on performance.
Fixed salary allowances
Here’s a list of the fixed salary allowances you can offer employees in addition to basic pay. Remember that every company is different, so choose the allowances that best fit your people’s needs.
If you’re unsure what those needs are, consider doing some research. Many companies use one-on-one meetings and surveys. One of the benefits of employee engagement surveys is that they assess what your employees need to perform and feel their best. Afterwards, use an employee survey results action plan to determine your next steps.
Meetings can also give you a more in-depth look at specific employee needs. If your organization doesn’t run this kind of meeting yet, use our one-on-one meeting template to speed up and standardize the process.
💸 Some allowances are subject to tax deductions. Tax laws are complex and may vary according to industry, location, and the monthly amount in question. If you’re in the United States, check out the IRS tax guidelines to understand the tax implications of your specific circumstances.
If your company is based outside the US, check the tax laws of every country you operate in.
Housing allowances, sometimes called house rent allowances (HRA), are payments organizations make towards employee housing costs. HRA may include one or more of the following:
- Rent, down payments, or mortgage payments
- Utilities (like electricity and water bills)
- Childcare expenses
- Cleaning and upkeep costs
- Furniture and appliances
- Home insurance
Companies usually offer a housing allowance for specific jobs or circumstances. For example, it’s standard for diplomats to get accommodation as part of their payment. In the business world, employers might offer a housing allowance to entice employers to relocate for a job in a more expensive or less desirable area.
Although housing allowances can save employees a lot of money, you can’t pay people with rent or free accommodation. HRA must always be in addition to basic pay.
Transportation allowances, also known as conveyance allowances, are extra sums of money for your people’s work-related travel expenses. This typically includes:
- Fuel, maintenance, and insurance for cars
- Public transport passes
- Parking costs or parking spot rental
For those companies that are not remote-first, paying for your employee’s travel expenses comes with many advantages. Transportation allowances ensure your people get to work on time, but they also show that your organization supports a healthy work-life balance where your staff can get to and from work as efficiently as possible. As a bonus, providing public transport passes can help reinforce your core values as an eco-conscious business.
As you might imagine, meal allowances are payments for your employee’s food and beverages. Some common examples are:
- Lunch, snack, and coffee breaks
- Meals with clients
- Meals during business trips, all-day conferences, or overtime work
- Office celebrations
In the past, employers offered meal allowances strictly for work-related purposes. Now, many companies have meal allowances that workers can use to buy home groceries, too. People-first organizations know that encouraging a healthy lifestyle positively impacts performance, morale, and overall well-being.
A training allowance is money you pay towards your employees’ learning and development, which may or may not be directly related to their job.
A training allowance isn’t to be confused with an education allowance, which is a government fund for the schooling of the children of officials who live abroad.
📚 For example, Leapsome gives each permanent staff member a US$2,000 budget each year to invest in professional development.
Many employees spend this on books, online courses, coaching, and educational events.
You might worry that paying for your employees’ training will enable them to find better jobs and leave your organization — but the opposite is true. According to a LinkedIn report, 94% of employees said they would be more inclined to stay with their company if they had more learning and development opportunities.
A work-support allowance is a benefit for employees who use their own equipment for work. For example, employees might use personal devices for:
- Workplace calls
- Company social media
- Attending meetings
- Checking and responding to emails
- Using job-specific apps
- Being available on workplace chats like Slack or Microsoft Teams
The main benefit of a work-support allowance is that it guarantees all employees have up-to-date, functioning equipment to use for their jobs. Work-support allowances also level the playing field between employees of different financial means, which can boost morale and improve relationships.
As more companies go remote or opt for hybrid setups, work-support allowances are also making way for remote work stipends. That means a work-support allowance could go towards your employees’ home offices instead of their workplace equipment. They might also be able to use it for furniture like ergonomic chairs and lamps.
Learn more about salaries & compensation
Setting up your fixed compensation plan may take some time, but it’ll pay off. Employees thrive when they can rely on the certainty of fixed pay instead of the roller coaster of constantly changing wages. Plus, by pinpointing what your people want and need, you can also find the right mix of allowances to help them perform at their best. The result is happier employees with higher levels of engagement.
To set up your company’s fixed compensation plan and keep things simple, consider a solution like Leapsome. Our compensation management software lets you build a compensation structure to perfectly suit your company: whether it’s fixed, variable, or a mix of the two.
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