Learn how to write employee compensation letter including a free template to use.

Free employee Compensation Letter template

While the name might just say otherwise, an employee compensation letter is not necessarily written when an employer is terminating the employment of an individual. On the contrary, these letters are frequently written especially where an employee is being compensated for a cost they might have incurred, which falls under the responsibility of the company. For instance, an organization can write a letter to an employee to remind them of a fixed allowance, which is included in the employment agreement.

How to write a compensation letter

It takes the format of most formal letters just that the content is different. It should be titled appropriately as employee compensation letter. Under the title, the print of the company’s logo should appear. This gives the letter a level of authenticity. The date when the letter was written should follow the logo. Then, make sure to include the details of the addressee. It should have the full name of the employer and the physical address.

As a formal letter, it should clearly address the employee. In addition, include a subject line indicating the exact purpose of the letter. In the case of transport allowance, the subject may read “Transport Allowance Compensation.” In the first paragraph, inform the employee that they are entitled to the transport benefits, and ensure to include the exact sum in relevant currency. Remember to notify the employee that the allowance is subject to change based on company’s policies. If you find writing this letter to be difficult or you cannot seem to get the employee compensation letter format, there is a way out. You can find an employee compensation template online, which you can use to draft your letter. Below is an example of the letter:

Sample of Employee Compensation Letter

Employee Compensation Letter

Company’s letterhead


Name of the employee

Address details

Dear Employee,

Transport Allowance Compensation

We wish to notify you that as from 17 Nov. 2016, you are entitled to transport allowance ($800) per month.

Do note that the allowance is based on your working location (Boston). Allowances allocated to individuals by the company are dependent on the discretion of the company and might change or be withdrawn without your consent.

Any other terms outlined earlier in the employment agreement, remain as such. Should you have any queries, please feel free to contact us.


Name of the employer/HR


Confirmation of the Transport Allowance

I accept your offer above together with the terms and conditions.

Name of the Employee

These articles may interest you