Compensation Law and Legal Definition

Compensation in the employment context is defined as all rewards received by a worker for duty and services rendered related to a job. This may include hourly wages or salary, overtime, bonuses, stock options, health insurance, pension plans, vacation and sick time, and all other benefits received from an employer.

There are various state and federal laws governing compensation, such as minimum wage laws, laws governing pension plans and overtime, and laws that prohibit discriminatory practices in compensating employees. Compensation is taxable by local, state, and federal authorities. Laws on the federal and state levels sometimes overlap, and in those instances, the federal law prevails.