Direct Salaries and Wages

• Direct salaries and wages are a type of compensation paid to employees from employers. This is pay an employee receives for helping the company in the revenue generating cycle. Examples of direct pay include base salary, bonus pay and overtime wages. These forms of compensation reward an employee for the quantity of service or quality of service provided to the firm.
  
  

Indirect Salaries and Wages

• Indirect salaries and wages are the second form of compensation from an employer to an employee. They do not directly benefit the firm. Indirect pay is not paid to an employee for services provided. Examples of indirect salaries include paid time off, training, health insurance and retirement contributions. One aspect they all have in common is that they are forms of compensation but they are non monetary. The company is not physically paying the employee in dollars.
  
  

Difference

• There are two big differences between direct and indirect salaries and wages. The first is that one is a direct compensation for services performed and the other is a benefit of being employed. The second one is that one is of monetary value and the other one is of nonmonetary value. The employee's goal is to have as big of a total compensation package as possible, while the employer's goal is to pay as little in total compensation as possible.
  
  

Use

• The advantage of indirect pay from an employer's point of view is that the employer may have access to one of the benefits at a cheaper rate than the employee. For example, the employer may get a quantity discount for providing health insurance to the whole company. In that case, the company will have to pay out less in total compensation because the value of the health insurance to the employee is more than it is for the employer. If the employer is a car company, it may make sense to have the use of a car as form of compensation. This is because the employer can provide that benefit at a cheaper rate than the employee can acquire it at.