HR Word: Incentive Pay

Incentive Pay definition

Compensation awarded for results rather than for time worked. Incentive pay, also known as pay-for-performance, is so-called because the prospect of financial compensation is supposed to be an incentive for an employee to remain motivated, work hard and strive for the best possible results.

 Commission, where sales staff get paid a proportion of each sale they make, is a common form of incentive pay.

Taxation around incentive schemes can be quite complex and HR will need to ensure compliance.

Although incentive pay refers most often to money, some companies do offer other incentives, particularly when part of a larger, more complex incentive scheme. Non-monetary incentives, or those where the employer has already borne the cost (such as dinners or gifts), are often known as ‘casual incentives.’

Employers who want a structured incentive scheme in place but don’t want to build one can often buy pre-made incentive schemes – the vendor is responsible for provision of incentives, but the tax liabilities will still fall to the employer.

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