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Handbook of Methods National Compensation Measures Concepts

National Compensation Measures: Concepts

The National Compensation Survey (NCS) produces indexes measuring change over time in labor costs through the Employment Cost Index (ECI) and the level of average costs per hour worked through the Employer Costs for Employee Compensation (ECEC). The NCS also provides estimates on the incidence of benefits by the percentage of workers with access to and participating in employer-sponsored benefit plans. The survey covers a broad range of benefits including holidays and vacations, sick leave, health and life insurance, and retirement plans. Details of employer-provided health and retirement plan provisions are also available.

Civilian workers. Those employed in private industry and state and local government. Excluded from the civilian economy are workers employed in federal government and quasi-federal agencies, military personnel, agricultural workers, volunteers, unpaid workers, individuals receiving long-term disability compensation, and those working overseas. In addition, private industry excludes workers in private households, the self-employed, workers who set their own pay (e.g., proprietors, owners, major stockholders, and partners in unincorporated firms), and family members paid token wages.

Occupational group. Workers are classified into occupations using the 2010 Standard Occupational Classification (SOC).

Industry group. Establishments are classified into industries using the 2012 North American Industry Classification System (NAICS).

Census division. Grouping of the United States into nine geographical areas: New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont); Middle Atlantic (New Jersey, New York, and Pennsylvania); South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, and West Virginia); East South Central (Alabama, Kentucky, Mississippi, and Tennessee); West South Central (Arkansas, Louisiana, Oklahoma, and Texas); East North Central (Illinois, Indiana, Michigan, Ohio, and Wisconsin); West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota); Mountain (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming); and Pacific (Alaska, California, Hawaii, Oregon, and Washington).  

Census region. Grouping of Census divisions into four major geographical areas: Northeast (New England and Middle Atlantic); South (South Atlantic, East South Central, and West South Central); Midwest (East North Central and West North Central); and West (Mountain and Pacific).

Work schedule. The number of daily hours, weekly hours, and annual weeks that employees in an occupation are scheduled and do work. The work schedule is the standard schedule for the selected job where short-term fluctuations and one-time events are not considered unless the change becomes permanent. Work schedules are either fixed, flexible, rotating, or nonfixed. Data are collected on usual work schedule. For more information on work schedules, see Work Schedules in the National Compensation Survey.

Establishment. A single economic unit that engages in one, or predominantly one, type of economic activity. For private industry, the establishment is usually at a single physical location, such as a mine, factory, office, or store. If a sampled establishment is owned by a larger entity with many locations, only the employment and characteristics of the establishment selected for the sample are considered for the survey. For state and local governments, an establishment can include more than one physical location, such as a school district or a police department. Each establishment is assigned a six-digit code from the NAICS.

Initiation. The process of collecting data from a new sample unit.

Update. The process of collecting current information from an initiated sample unit.

Full-time and part-time work status. Employees are classified on the basis of definitions used by each establishment. The NCS does not use a specific threshold of hours to determine the work status.

Bargaining status. Workers are classified as union workers when these conditions are met: 1) a labor organization is recognized as the bargaining agent for all workers in the occupation, and 2) wage and salary rates are determined through collective bargaining or negotiations. Workers that do not meet these conditions are classified as nonunion workers.

Time-based pay. Wages and salaries that are solely based on a unit of time, such as an hourly rate or an annual salary. Straight-time (time-based) wages rates are commonly referred to as base rates or base wages.

Incentive-based pay. Wages and salaries that are at least partially based on productivity payments, such as production bonuses, commissions, piece-rates, or other types of incentives based on production, sales, or output. Nonproduction bonuses or those not tied to individual production or output are considered as part of benefits in the NCS.

Work levels. Each sampled job is evaluated to determine the work level of its duties and responsibilities. The point factor leveling process categorizes certain aspects of a job to specific levels of work with assigned point values based on

  • knowledge
  • job controls and complexity
  • contacts (nature and purpose)
  • physical environment

Total compensation. Included are employer costs for wages and salaries and for employee benefits. 

Wages and salaries. Remuneration of regular payments from employer to employee as compensation for services performed during a specific period of time or based on production, sales, or specific output.  

The following components are included in wages and salaries:

  • Incentive-based pay, including commissions, production bonuses, and piece rates
  • Cost-of-living allowances
  • Hazard pay
  • Payments of income deferred due to participation in a salary reduction plan
  • Deadhead pay, defined as pay given to transportation workers returning in a vehicle without freight or passengers

The following forms of payments are not included in wages and salaries:

  • Uniform and tool allowances
  • Free or subsidized room and board
  • Payments made by third parties (for example, tips)
  • On-call pay

The following forms of payments are considered benefits and not included in wages and salaries:

  • Shift differentials, defined as extra payment for working a schedule that varies from the norm, such as night or weekend work
  • Premium pay for overtime, holidays, and weekends
  • Nonproduction bonuses or those not directly tied to production (such as end-of-year and profit-sharing bonuses)

Benefits (cost). The cost to employers for providing a benefit. NCS captures the cost of benefits in five major categories: (1) paid leave—vacation, holiday, sick, and personal leave; (2) supplemental pay—overtime and premium, shift differentials, and nonproduction bonuses; (3) insurance—life, health, short-term and long-term disability; (4) retirement and savings— defined benefit and defined contribution; and (5) legally required benefits—Social Security, Medicare, federal and state unemployment insurance, and workers’ compensation.

Cost per hour worked.  Total employer cost of wages and salaries or benefits divided by total hours worked (includes all hours worked only or annual work schedule hours plus overtime minus leave hours). 

Contributory plan. An employer-sponsored plan, which is paid for in part by the employer and in part by the employee. Employees in contributory plans are considered participating if they have paid the required plan cost and fulfilled any applicable eligibility requirements. Defined contribution plans and medical care plans are typically contributory plans.

Noncontributory plan. An employer-sponsored plan that is completely paid by the employer. Employee contributions are not needed in order to participate. Employees in noncontributory plans are considered participating if they have fulfilled any applicable eligibility requirements. Traditional defined benefit plans, life insurance, and short- and long-term disability plans are typically noncontributory.

Incidence of benefits. The percentage of all workers who are provided a particular benefit plan. The incidence can be either a rate of access to, or a rate of participation in, a benefit plan.

Access. Employees are considered to have access to a benefit plan if it is available for their use. For example, if an employee is permitted to participate in a medical plan offered by the employer, but the employee declines to do so, he or she is placed in a category with those having access to medical care benefits.

Participation in a benefit plan. Employees in contributory plans are deemed to be participating in a plan if they have paid required contributions and fulfilled any applicable service requirements. Eligible employees in noncontributory plans are considered participating in the plan.

Take-up rates. Take-up rates are the percentages of workers with access to a plan and who participate in the plan. Take-up rates are computed as the number of workers participating in a plan, divided by the number of workers with access to the plan, times 100 and rounded to the nearest whole percentage. Because the computation of take-up rates is based on the number of workers, rather than the rounded percentages, the take-up rates in published tables may differ slightly from the ratio of participation to access.

Establishments offering benefits. Employers may offer benefit plans to all workers or they may limit them to certain groups of workers. The NCS considers an establishment as offering benefits if any workers have access.

Provisions of benefit plans. The terms of employer-sponsored benefit plans. These include eligibility requirements (e.g. age, service, and combination of age and service), vesting requirements (e.g. cliff, graded, and immediate), plan type (e.g., savings and thrift, money purchase plan), additional employee costs (e.g., out-of-pocket maximum, deductible, copayment, and coinsurance), number of days granted (e.g. vacation and sick leave), and carryover provisions.

Health care benefits. Plans provide preventive and protective medical, dental, vision, or prescription drug coverage to the employee and the employee’s dependents, including the spouse and children.

Medical care. Plans provide services or payments for services rendered in the hospital or by a qualified medical care provider.

Retirement benefits. Retirement plans are classified as either defined benefit or defined contribution plans. Defined benefit plans determine payments according to a fixed formula based on salary, years of service, and age. Defined contribution plans determine the value of individual accounts by the amount of money contributed and the rate of return on the money invested.

Defined benefit plans. Defined benefit pension plans provide employees with guaranteed retirement benefits based on benefit formulas. A participant’s retirement age, length of service, and preretirement earnings may affect the benefits received. 

Defined contribution plans. Retirement plans that specify the level of employer contributions and place those contributions into individual employee accounts.

Last Modified Date: December 15, 2017