Much has been written about negotiating salary and benefits, but most of it boils down to knowing what you’re worth in the marketplace, identifying which benefits are important to you, and putting a price tag on the benefits offered by your prospective employer so you can evaluate its real value. When meeting with prospective employers, find out what benefits and perks the company gives employees in the position you’re applying for, what an average pay increase is, and what benefits the company might add if they’re not able or willing to offer the salary you’d like.
Experts caution job seekers to delay discussing salary until well into the interview process and to avoid telling interviewers your current salary. You shouldn’t be pegged at a salary range that’s lower than the going rate just because you’re underpaid in your current job, and discussing salary too early in the process can stick you with a lower than acceptable offer or, conversely, take you out of the running if your current salary is too high.
Cost of Living Calculator
To find out how much you’d need to earn in a new city to equate to your current salary, use the cost of living calculator at www.smartasset.com. Enter the city and state you’re moving from and to, your current gross salary, and basic information about your family size.
Employer-provided benefits are a significant part of any compensation package and can have a profound effect on your finances. Employers often provide a wide range of benefits, including the following:
All of these benefits, as well as others not mentioned, have a monetary value that you should consider when evaluating your salary or comparing job offers. Some benefits, such as 401(k) plans, also have tax advantages that can save you additional money by reducing your current income tax bill.
Most people with health insurance are covered under a group plan offered by their employer or their spouse’s employer. Although employers are charging employees more as prices continue to increase dramatically each year, employer-provided health insurance is still a bargain. If you aren’t offered coverage through your employer, you can purchase an individual policy, but these can be expensive—unless you qualify for subsidies under the Affordable Care Act—especially as you get older or if you have a family. Whether you’re married or single, you need health insurance to protect yourself against financial disaster in the event of a serious illness or accident.
If you’re fortunate enough to have employer-provided coverage, calculate its monetary value by first finding out what the company pays for your medical, dental, life, and long- and short-term disability on a monthly or yearly basis. Some ways to ascertain this information might be to consult your employment contract, your pay stub, or ask your employer’s human resources department. If you contribute to the cost, subtract your contribution from the total. If your contribution is pretax (as in your retirement plan), factor in your tax savings by adding your Social Security tax rate of 7.65 percent (up to $137,700 in earnings as of 2020, after which it’s only 1.45 percent), your federal tax rate, and your state tax rate. Multiply the total percentage times the amount you pay toward your insurance coverage to calculate your tax savings.
For example, if you’re in the 24 percent federal tax bracket and a 7 percent state tax bracket, add these two percentages plus the 7.65 percent Social Security tax. Your total tax rate is 38.65 percent. If you contribute $100 per month toward your insurance, your real cost is $61.35 ($100 × 38.65 percent = $38.65 in savings; $100 – $38.65 = $61.35).
FSAs, which can be either healthcare or childcare reimbursement accounts, are an employer-provided benefit that allows you to set aside pretax contributions to pay for eligible medical expenses that aren’t covered by your health insurance or childcare expenses. Those medical expenses include premiums (unless they’re paid with pretax money), deductibles, co-pays, and any other health cost considered an allowable medical expense by the IRS. For a complete list of allowable medical deductions, see Publication 502 on the IRS website (www.irs.gov).
You benefit from an FSA because your contributions are deducted from your gross income before taxes are calculated, thus reducing the amount of taxes withheld. If you have significant medical expenses, an FSA can help you save a lot of money, so don’t overlook this great benefit. Don’t contribute more than you think you’ll use, because under IRS regulations, you forfeit any unused funds at the end of the year; FSAs are “use it or lose it” accounts. If you get stuck toward the end of the year with an unused balance, visit your local drugstore and stock up on bandages, blood sugar test kits, contact lenses and saline solution, and any other eligible goods you think you’ll use in the coming year.
If your employer provides a 401(k) plan, you’d do well to participate—remember, your contributions and the account earnings are income tax–deferred. If your employer matches a percentage of your contribution, add this free money to your compensation total when calculating the value of your benefits. Many employers make matching contributions for up to 3 to 6 percent of your salary. If you earn $40,000 a year and contribute $200 a month and your employer match is 75 percent for up to 6 percent of your salary, your employer will kick in another $150 a month up to a maximum of $2,400 a year. Under this example, your employer is actually paying you an additional $1,800 a year ($150 × 12 = $1,800).
The world of employee stock ownership plans (ESOPs), stock option plans, employee stock purchase plans (ESPPs), and incentive option plans is confusing at best, and it’s difficult if not impossible to evaluate the potential worth of stock and stock options offered by your employer. Stock options are a popular method of attracting employees into start-up companies that are low on cash but full of future growth potential.
Stock option plans are a way for companies to attract, share ownership with, and reward employees. A stock option gives an employee the right (but not the obligation) to buy company stock at a specified price during a specified period after the option has vested. Companies use the vesting period (usually at least five years) to motivate employees to stick around. Let’s say you receive an option of 500 shares at $10 per share and the stock price goes up to $20. You can exercise the option and buy the 500 shares at $10 each, sell them for $20 each, and pocket the $5,000 difference. If the stock price never rises above the option price, you don’t lose money, but you don’t make any either.
Types of Plans
If you’re offered stock options, be sure you understand which type they are and how they work. You can find detailed information about the various types of plans at the National Center for Employee Ownership website at www.nceo.org.
Employee stock purchase plans (ESPPs) offer employees the chance to buy stock, usually through after-tax payroll deductions during an “offering period” at a discounted price. The employee can then sell it right away and take the profit created by the discount, or hold on to it in expectation that its value will increase.
Employee stock ownership plans (ESOPs) are a type of benefit plan that is regulated by the federal government in which a trust is set up to acquire some or all of the stock of the company and sell the stock to employees. Because ESOPs receive tax advantages, they’re not allowed to discriminate in favor of key or highly compensated employees, so most employees get to participate. The shares generally remain in the company trust until the employee leaves, then any vested shares get distributed to the employee. ESOPs are often used as a type of retirement plan, or as an exit strategy for the boss in small companies. Be cautious about investing the bulk of your retirement funds in company stock no matter how well established the company is.
Incentive stock options (ISOs) allow employees to purchase shares of stock at some time in the future at a specified price. The employee pays tax on the gain upon sale or disposition of the stock, not upon receipt or exercise of the option. Nonqualified stock options don’t have the restrictions of other options and don’t receive any special tax consideration. How these gains are taxed depends mainly on timing: the period between when the option was granted and exercised, and the amount of time the shares were held before they were sold.