Handbook of Methods > Employer Costs for Employee Compensation

Handbook of Methods Employer Costs for Employee Compensation Concepts

Employer Costs for Employee Compensation: Concepts

The Employer Costs for Employee Compensation (ECEC) measures the average employer cost per employee hour worked for total compensation, wages and salaries, and benefits and costs as a percentage of total compensation. Employer costs are available for employee benefits, including paid leave, vacation, holiday, sick, and personal leave; supplemental pay, including overtime and premiums, shift differentials, and nonproduction bonuses; insurance, including life, health, and short-term and long-term disability; retirement and savings, including defined benefit and defined contribution; and legally required benefits, including Social Security, Medicare, federal and state unemployment insurance, and workers’ compensation.

Estimates are provided as dollar costs per hour worked and as a percentage of total compensation. Estimates are provided for wages and salaries and benefits for the civilian, private industry, and state and local government ownership categories. Estimates can also be segmented by occupational group, industry group, geographic area, bargaining status, work status, and establishment size.

Ownership. The type of sector the establishment is controlled by—either private industry or state and local government.

Civilian workers. A combination of those employed in private industry and state and local government. Volunteers, unpaid workers, individuals receiving long-term disability compensation, and those working overseas are excluded.

Private industry. Those employed in private industry establishments. Workers in private households, the self-employed, workers who set their own pay (e.g., proprietors, owners, major stockholders, and partners in unincorporated firms), family members paid token wages, and the agricultural sector are excluded.

State and local government. Those employed in state and local government establishments. Federal government and quasi-federal agency workers and military personnel are excluded.

Compensation component. The type of employer provided compensation, either from wages and salaries or benefits.

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 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
Accrued longevity pay
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
Retroactive pay
Lump sum non-accrued longevity pay

The following forms of payments are considered benefits and are 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. Some benefit costs are driven by employee wages, while others are actuarially determined. ECEC captures the employer cost of benefits in five major categories:

Paid leave—vacation, holiday, sick, and personal leave
Supplemental pay—overtime and premiums, shift differentials, and nonproduction bonuses
Insurance—life, health, short-term and long-term disability
Retirement and savings—defined benefit and defined contribution
Legally required benefits—Social Security, Medicare, federal and state unemployment insurance, and workers’ compensation

Paid leave. Paid absence from work.

Vacation leave. Paid absence from work (or pay in lieu of time off) provided on an annual basis and normally taken in blocks of days or weeks.
Holiday leave. Paid absence on days of special religious, cultural, social, or patriotic significance on which work and business ordinarily cease.
Sick leave. Paid absence from work if an employee is unable to work because of a non-work-related illness or injury.
Personal leave. A general-purpose leave benefit, used for reasons important to the individual employee, but not otherwise provided by other forms of leave.

Supplemental pay. Monetary compensation in addition to a regular base salary.

Overtime and premiums. Pay for any work beyond the employee’s normal straight-time work schedule (i.e., regularly scheduled daily and weekly hours). Overtime pay usually includes a premium; however, there are some plans that compensate overtime at regular pay or another amount.
Shift differentials. Pay for hours worked within an employee’s regular work schedule that are designed to entice employees to work shifts the employer finds harder to staff (e.g., less desirable shifts).
Nonproduction bonuses. Pay given at the discretion of the employer and not tied to a production formula, such as holiday bonuses and cash profit sharing.

Insurance. Plans providing protection against financial loss in the event of a certain loss, damage, or injury.

Life insurance. Plans that provide a lump-sum payment to a designated beneficiary or beneficiaries of a deceased employee.
Short-term disability. Plans provide benefits for non-work-related illnesses or accidents on a per-disability basis, typically for a 6-month to 12-month period.
Long-term disability. Plans that provide a monthly benefit to eligible employees who, because of a non-work-related illness or injury, are unable to work for an extended length of time.
Health insurance. Plans that provide preventive and protective medical, dental, vision, or prescription drug coverage to the employee and the employee’s dependents, including their spouse and children.

Retirement and savings. Plans that provide employees with savings and investments distributed throughout an employee’s retirement.

Defined benefit plans. Plans provide employees with guaranteed retirement benefits according to a fixed formula. A participant’s retirement age, length of service, and preretirement earnings may affect the benefits received.
Defined contribution plans. Plans that specify the level of employer contributions and place those contributions into individual employee accounts.

Legally required benefits. Mandatory benefits that employers are required to provide to employees by law.

Social Security. Also known as Old Age, Survivors, and Disability Insurance, provides income for retired workers, dependents, and disabled workers and their families.
Medicare. Provides federal health insurance to people who are 65 or older, have disabilities, or have permanent kidney failure.
Federal unemployment insurance. Along with state unemployment programs, provides benefits to workers who have lost their jobs.
State unemployment insurance. Provides income payments to eligible workers who have been laid off from their jobs; benefits usually are paid weekly as a percentage of an unemployed worker’s previous salary, up to a weekly maximum amount.
Workers’ compensation. Pays medical expenses and provides for lost income resulting from work-related injuries and illnesses.

Subcategory. Category identifying the attributes of workers or establishments for the estimate.

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

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

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, 2) wage and salary rates are determined through collective bargaining or negotiations, 3) settlement terms on earning provisions are embodied in a signed, mutually binding collective bargaining agreement. Workers that do not meet these conditions are classified as nonunion workers.

Full-time and part-time work status. Employees are classified based on the definitions used by each establishment. The ECEC does not use a specific threshold of hours to determine an employee’s work status.

Establishment size. The number of employees reported working at an establishment. This category is reported as a range (less than 50 workers, 50–99 workers, less than 100 workers, 100 workers or more, 100–499 workers, or 500 workers or more).

Area. The physical boundaries that an establishment must be located within (e.g., state, county, parish, township, or city) to be included in the survey.

National. Includes the continental United States (including Alaska) and Hawaii; excludes U.S. territories such as Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, and the Virgin Islands.

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)
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)
West (Mountain and Pacific)

Metropolitan Statistical Area (MSA) or Combined Statistical Area (CSA). Large population centers with adjacent communities that have a high degree of economic and social integration. These communities are defined by the Office of Management and Budget (OMB). ECEC data is available for the 15 largest MSAs and CSAs.

Datatype. The measurement type of the estimate.

Cost per hour worked. Total employer cost of wages and salaries or benefits divided by total hours worked (includes all hours worked or annual work schedule hours plus overtime minus leave hours). All workers are included in the benefit cost estimates, including those that do not have plan access or do not participate.

Percent of total compensation. The proportion of total compensation represented by a specific compensation component.

Compensation percentile estimate. Wage percentile estimates constructed using wages and salaries. These estimates are used to determine the 10th, 50th (median), and 90th percentile bands and the average benefit costs for observations included in those percentile wage bands.

Current dollar. Estimates describe change in the labor costs at the present or nominal value, unadjusted by changes in consumer prices.

Constant dollar. Estimates describe real compensation cost changes, adjusted by changes in consumer prices.

Sample. All the units/establishments or jobs/occupations selected for the 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.

National Compensation Survey (NCS). The National Compensation Survey (NCS) is an establishment-based survey that provides comprehensive measures of employer costs for employee compensation, including wages and salaries, and benefits; and the incidence and provisions of employer-sponsored benefits among workers.

Reference period. Costs represent the pay period that includes the 12th of March, June, September, and December.

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

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 the “Work Schedules in the National Compensation Survey” article.

Last Modified Date: September 30, 2025