Immediate compensation describes the part of an employee's remuneration that is made up of wages and salaries, and also includes certain performance-related pay and commissions. Whether payments are classed as immediate compensation can affect the recorded and reported financial performance of a company.
This type of compensation is money a person is paid once the person has earned it. Though there is something of a fine line, this would normally include any payment schedule that is considered standard for basic pay. For example, if a company paid staff at the end of the month for that month's work, it would usually be classed as immediate compensation.
The payments do not consist solely of salaries and wages: they can also include money that is dependent on performance. This could include commission based on sales, or bonuses that are linked to how a particular employee or department performs. The key to such money being classed as immediate compensation is that it is paid in a reasonably quick time.
For example, a worker may be paid a basic salary plus commission, but the commission may not be worked out until the month is complete. If the worker is paid on the last Friday of each month, there could be a set-up where he gets base pay for January in the January payment, but must wait till the February payment to get commission based on January's sales. This would still be classed as immediate compensation as it is paid as soon as reasonably possible under the company's schedule.
The importance of immediate compensation is that it is distinct from deferred compensation. This is a specific agreement between an employer and an employee, most commonly a senior manager or other executive, that the employer will pay some money to the employee at a later date, even though it is earned. This could be a portion of salary, or it could be a standalone bonus. In some cases the money will be invested on the employee's behalf in the meantime meaning she may wind up getting more money overall.
There are two timing keys to deferred compensation. From the employer's perspective, the payment is recorded in a later accounting period, which may affect on-paper profitability both now and then. From the employee's perspective, the payment may fall into a different tax year. As this could affect the tax due, both for each individual year, and overall, employees may specifically negotiate deferred compensation with its tax effects in mind. Tax regulations may limit the benefits a person can get from the delay.
