Compensation Agreement
Alternate Names:
A Compensation Agreement is also known as a/an:
- Salary Agreement
- Employee Compensation Agreement
- Compensation Contract
What is a Compensation Agreement?
A Compensation Agreement is used by an employer to record a negotiated change in wage or earning potential for an employee. As an example, after a new employee completed their probationary period, the employer and employee agree to a new wage amount in the form of a raise. Both parties could use a Compensation Agreement to document the change.
A Compensation Agreement acts as a supplemental form to an Employment Contract, in that it does not replace it, but rather amends or changes the details regarding employee compensation to the new terms.
What should be included in a Compensation Agreement?
A Compensation Agreement should include information about the parties involved (the employer and employee), and details about how the employee will be compensated for their work, like hourly wage, yearly salary, commission, etc. The agreement also needs to include how often the employee receives their wages, such as monthly or every two weeks.
LawDepot's Compensation Agreement prompts you to enter details about earnings as part of the questionnaire, but you can also add any additional clauses that might be unique to your situation.
As an example, a salesperson may be entitled to receive a bonus if they exceed sales targets during a business quarter.
What is the difference between a Compensation Agreement and an Employment Contract?
An Employment Contract typically covers things like the employment term (the length of time the employee will work with the company, if applicable), details about holidays, sick leave, and bereavement polices, as well as details about the initial compensation an employee receives when they begin their employment.
A Compensation Agreement is usually introduced at some point during the employment term (such as after a probationary period or an annual review process) to outline any changes in wages, like a raise or bonus, or even changes in non-monetary compensation, such as additional vacation or personal days. The agreement simply records the employee's updated wage amount and other details related to their new compensation terms.
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