What is Deferred Compensation ?
Deferred compensation refers to a portion of an employee’s income that is set aside to be paid at a later date, typically after retirement or upon meeting certain conditions. It is a financial arrangement often used as part of retirement plans or executive compensation.
Types of Deferred Compensation:
- Qualified Plans: Tax-advantaged, regulated plans like 401(k)s.
- Non-Qualified Plans: More flexible, often offered to executives, but less regulated.
Benefits:
- Allows tax deferral.
- Supports long-term financial planning.
- Enhances employee retention.
How HR teams use this term
HR teams usually use Deferred Compensation when they write policies, explain employee communication, review payroll or leave records, or keep employee data clean in an HRMS.