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Compensation is payment made to employees for their services.

Expanded Definition

Compensation is usually either salary (paid by the month) or wages (paid by the hour). Salaried employees are exempt from overtime laws. Waged employees are not exempt from overtimes laws, and are sometimes referred to as non-exempts.

In these times many workers are self-employed contract workers. They are paid for their services as contractors, but are not considered employees. Hence, they are responsible for paying for their own benefits and Social Security payments. They pay self employment tax, and they are eligible to participate in retirement plans for the self-employed.

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