Salary and Employment BenefitsBy Money Mage · · Guest Post, Salary, Benefits
This is the second in a series of Guest Posts on Money Mage, by Adam Wilson from Awesome Personal Finance
Salary and Employment Benefits
In this post we will explore job compensation and the differences between salary and employment benefits. Have you thought this through carefully? See if you have considered it from every angle by reading some of the points below.
Superficially, choosing between job offers seems simple. Most people are in it for the money. They want to earn their living. The employment benefits are increasingly more complex and make it hard for people to know what their true value is. This makes it harder than ever to recognize the best offer on the table.
How much ya make?
In a given industry companies are competing for talent so it’s in their best interest that nobody really knows their worth. This is why the HR department will typically hook a right turn down Super Angry Ave. If they hear about employees talking about their pay. If you talk to a coworker about your pay there are only two possible outcomes. You make more than them and you feel good for five seconds or you make less and you start the subtle journey of looking for more money. It’s unlikely your pay is equal. If employees don’t talk about salary who wins? The companies do, and they know it.
Have you Seen Our Employment Benefits?
Benefits are what companies lead with now. They won’t even talk salary until you are locked in a room with their HR people. Even if they do offer you something you can bet there will be a pitch of “you don’t need salary because the benefits are so good”. Employment benefits can be really good but they might have low utility. I’ve seen companies have computer budgets for a computer costing $3k. Would you even know how to spend that much on a computer? Similarly, companies have tuition payment benefits, but if you already went to college that has very low utility to you. Your salary has a very high utility. You can use it however you want. You can pay for financial events that are far down the timeline. That time can be used to accrue even more money. Time is your greatest financial asset.
Some benefits are standard across all industries. Things like paid time off , healthcare, and retirement plans are almost always there. Even these standard benefits can vary wildly. A company might have a huge 401k match but have very limited number funds you can invest in. Healthcare is also hard to compare because many parameters can multiply confusion in the comparison. Things like deductibles, co-pays and premiums vary among insurance plans. Even time off is not simple. Does your time off accrue while you use time off? People don’t think about these micro details and that is how they fall in love with their company and stop pursuing what is best for them.
Total compensation is the buzz word of day. You should be very skeptical of this because what they call total compensation might be hiding your take home pay in another number that adds on an inflated value to the benefits. If you have no kids then discounted child care has no value you. If you are on a spouses military healthcare plan the company health insurance has no value to you. Only your salary has full flexibility to take care of what is important to you. You can obviously benefit from the some of the benefits but don’t be brain washed by obfuscating terms like “total compensation”.
What about Taxes?
Please note, Money Mage is not advice, and the information about Tax in this post is US centric.
I have pitched this logic to people in the past and they almost inevitably tell me, “I’d rather have benefits because they could be tax free”. There is some truth to this. If your company gives you $1k for “training” every year then you can use the full amount on the training. That is better than if they gave you the money because you would pay taxes on it.
The Tipping point
The tipping point are your priorities and situations. If you actually use the benefits you might be in a tax advantaged situation. If the benefits don’t apply to you then you are going to want more salary. The thing to keep in mind is your priories might change over time. Major life events like marriage, divorce and family might skew what has value to you in the future. Ultimately, the older you get the less you are likely to care about some benefits. A training benefit to a 25 year old might have a lot of value. Training for a 40 year old it’s almost meaningless.
More Salary Means more Taxes …
If you make more you will pay more in taxes, but you also take home more money. Paying more taxes shouldn’t discourage you from seeking the highest paycheck possible. Get to know your pay stub and see what money is coming out of your gross pay. Calculate your take home pay with take-home-pay calculators. You can use these calculators as a major tool when considering new jobs or how a raise will impact your bottom line.
Good points, but now what ?
We have learned a few things here.
- Salary has more utility than benefits
- Benefits are tax advantaged if you actually get utility out of them
- Look at the details of your benefits. Things like deductibles and co-pays can make a big difference, especially if you get sick.
- Be objective about salary negotiation. A strong company will respect you for it. They will give you a bigger salary if you are bold enough to ask for it.
There are many ways to go out and make money. Conventional jobs are probably the safest way. Income from a job is how most people are living. You can do substantially better than average if you seek out higher pay and don’t get bamboozled by benefits and mind games. Jim Rohn said, “you don’t get paid by the hour, you get paid for the value you bring to that hour”. I would bet you are a lot more value than you think, so I encourage you to go out there and get paid for it. You are worth it.
Can you relate?
Do you have a job compensation story? Share it in the comments below!
About the Author
Adam Wilson is a Ph.D. , professional software developer, and financial blogger. Check out more of his musings on his site: https://awesomepersonalfinance.com/
Subscribe now, follow me on Twitter @moneymagery, stick by your principles and you’ll be mortgage-free in no time.