Crouching Benefits, Hidden Paycheck
We all have different motivations for working, whether for love, money, power, prestige, or other things entirely. If you really take a look within you’ll realize that it is a combination of things that motivate you. Even if it is not the most important factor, money is in that mix for most working people.
When we go to work we are trading our labor for compensation, most often in the form of a paycheck. This money is used to pay for things that we need now, things that we will need in the future (savings, retirement), and even things that we simply want. Often we look at “the numbers” and only see our salaries. This narrow focus may cause us to miss our “hidden paycheck” in the form of other benefits which is where your employer can make a huge difference in your personal bottom line even if the base salary is similar.
When making a large purchase, say a new computer on which to make your next blog post, I would be willing to bet that you — at the very least — search multiple sites to get the best price. The best price is not always the lowest advertised price because they are often given before any taxes or shipping costs. The best price is the one that has the lowest total cost, including purchase price, applicable taxes, and shipping costs. Because you are a smart consumer, you choose the lowest total cost, assuming you would be happy with any of your merchant choices.
Did you do a similar calculation when deciding to make your last job change?
Just like a new computer has costs beyond the purchase price, a job has value beyond the salary. This value includes things like paid time off, retirement plan matching funds, company-paid insurance (health, dental, vision, life, disability), health savings contributions, and more. These benefits all factor into your total compensation and vary, often wildly, from company to company. To see how this works, let’s compare two example job offers.
Company A has offered a salary of $59,500 / year, while Company B has offered a salary of $64,300. Assuming you like both companies enough to work for either one, Company B looks like the better choice. But things may change once we take a deeper look and find the “Crouching Benefits, Hidden Paycheck.”
Company A offers a 100% match on your 401(k) contributions up to 10% of your salary. Seeing as how there are few investments that return 100%, you are likely to max this benefit to the tune of $5,950/year on your $5,950/year contribution. [Please note that this is a simplified look at the 401(k) match due to plan details that may allow for pre-tax or post-tax employee contributions and will have different effects on take-home pay.]
Company B offers a 50% match on your 401(k) contributions up to 6% of your salary, which is much closer to the standard match. This would mean a benefit of $1,929/year on your contribution of $3,858/year. Just factoring in 401(k) matching, Company A is providing a total compensation of $65,450 / year and Company B is providing $66,229. The total compensation is still higher with Company B, though the gap has narrowed significantly.
Looking further to insurance benefits, let’s assume that Company A pays 100% of the coverage premiums for your family at a cost of $7,500/year. Company B covers 50% of the premium for the same plan, meaning they will pay $3,750/year and you will do the same. As the 50% insurance premium payment will cost you $3,750/year, we need to subtract this from the total compensation you would receive from Company B, bringing it to $62,479/year. Company A will remain unchanged at $65,450/year, as you incur $0 in premium expenses. [NOTE: You may also add the money paid by each company in insurance premiums to the total compensation, but we have chosen not to as this will not have an effect on the amount of money in your paycheck or in your retirement accounts.]
There are other benefits to be calculated, but we will skip over those as they are done the same way as the 401(k) match and health insurance. Company A clearly places more emphasis on benefits beyond salary than Company B, which offers higher salaries. For the purposes of this blog post, we will assume that Company A’s other benefits are above average while Company B’s are standard. In spite of offering a lower initial salary, Company A is providing total compensation of $65,450/year due to its benefits package. Company B, in spite of offering a higher initial salary, is providing total compensation of $62,479/year due to its more standard provided benefits. After digging down and finding the “hidden paychecks” from both companies, Company A is the better choice given its higher total compensation.
When considering your next career move, do yourself a huge favor and take a look into the total compensation before deciding where you ultimately go to work.
If you are currently looking for new opportunities and want to work somewhere with excellent benefits (100% 401(k) match up to the IRS limit and 100% employer-paid insurance premiums for you and your family), we are hiring.
