Have a new job offer sitting on the table? You’re probably weighing the offered salary, determining whether it meets your needs and if it’s fair for the position and current job market. While a good and fair salary is important, it isn’t the only way that you’ll be compensated as an employee.
Too often, jobseekers and even current employees fail to consider their total packages, causing them to ignore thousands of dollars of benefits. In this article, we’ll show you how to evaluate an employee benefits package to help you get a better idea of its value.
What are employee benefits?
Employee benefits are any type of compensation that an employer offers beyond your paycheck.
Because employee benefits aren’t delivered as cash in your bank account, it can be difficult to see the true value and potential impact on your life. For instance, employer-provided health insurance can give you thousands of dollars’ worth of coverage each year. If your employer offers 401(k) matching contributions, they’re basically giving you “free” money to set aside in a tax-advantaged retirement plan. And if you’re not aware of these benefits or their value, you could be doing yourself a huge disservice.
How to Evaluate Your Employee Benefits Package
Let’s look at the basics of employee benefits and how to calculate their monetary value. Keep in mind that every company offers different benefits, and your employer may not offer all the benefits listed below. (And if you see a benefit you’d like, maybe it’s time to ask for it!)
1. Retirement Benefits
An employer-sponsored retirement plan is a major perk. While you can certainly save for retirement on your own, a 401(k)— the most common plan offered by private employers— has a few unique advantages.
For one, a 401(k) is tax advantaged. Your contributions are made with pre-tax dollars, so any amount you contribute is deducted from your taxable income, thus lowering the amount of tax you may have to pay at the end of the year. Second, some employers will offer 401(k) matching, which means that they will also contribute a certain amount to your retirement plan. Some employers also offer a Roth 401(k) option which allows you to contribute after-tax dollars to the plan. When you retire, you can withdraw that money tax-free. That can be beneficial if you think you may be in a higher tax bracket when you retire.
How to assess your retirement benefit’s value: The biggest thing to look at when calculating the value of an employer-sponsored retirement plan is to look at employer matching. See how much they are willing to match and the vesting schedule (the length of time you have to work for the employer before the matching funds are considered yours). You’ll also want to consider how much you plan on contributing so you can understand the full impact of the benefit.
2. Health Insurance
Employer-provided insurance is another benefit that can save you thousands of dollars each year. A plan paid for (or partially paid for) by your employer can save you some serious cash on your healthcare. Depending on your situation and location, an employer-sponsored insurance plan can be much more affordable than other options on the marketplace. According to a 2021 study by the Kaiser Family Foundation, the average national monthly cost in the marketplace for individual medical insurance is $438 without subsidies.
How to assess the value of health insurance benefits: Start by finding out how much your employer covers. Some employers may cover your entire insurance premium; others may cover up to a certain amount.
If you end up having to pay a portion of the monthly premium, evaluate the plans offered. Be sure to take into account the expenses that you and any covered dependents typically incur for healthcare. For example, if you take any medications on a regular basis, you will want to consider the prescription formulary that the employer’s plan offers. Depending on how the insurance company classifies your medication, it may be covered under a copay, or you may have to pay a percentage of the market cost for the drug. If your child regularly sees a specialist for a health condition, you will want to verify that the doctor is an approved provider under your new plan and review how the plan charges for visits to a specialist. Chances are, you’ll be getting much better coverage than what you could purchase on the marketplace for the same amount. Remember that better coverage usually means you’ll pay less when it comes to doctors, prescriptions, and emergency services.
3. Savings and Spending Accounts
Another consideration when you’re evaluating benefits: does your employer offer Flexible Spending Accounts (FSA) or Health Savings Accounts (HSA)? These types of tax-advantaged savings accounts can help supplement your insurance benefits. They each have their own specific requirements, but here are the basics:
- Health Savings Account: this is a tax-advantaged investment account that is meant for healthcare expenses. Your funds roll over year-to-year, and the account grows tax-free. As long as you use the funds on valid healthcare expenses, withdrawals are also tax-free. You must be enrolled in a high deductible health plan to open an HSA.
- Flexible Spending Accounts: Contributions to an FSA are tax-free, but this type of account is not an investment account. Funds can be used each year to pay for healthcare expenses and dependent care expenses, but depending on your specific benefits, the balance will not be rolled over at the end of every year. You must use the funds or lose them.
How to assess the value of additional accounts: This assessment will go hand-in-hand with your evaluation of your health insurance benefits. Because you can only contribute to an HSA if you’re on a high deductible health plan, assessing an FSA and HSA really depends on what kind of insurance coverage you choose.
After determining which account works for you, the monetary value of this benefit can be found in the tax savings. If you have an HSA, you can also consider the value of tax-free growth.
4. Other Insurance
Your employer may offer you other types of insurance policies, such as disability or life insurance policies. These additional insurance benefits cover you under a specific set of circumstances, like if you’re temporarily disabled. Some employers offer them at no cost, and others offer them for a fee.
How to assess the value of other insurance benefits: Just like you evaluate your medical insurance, start by looking at how much the employer covers and what the policy includes. If you have an existing life insurance policy, compare the two options. With short-term disability insurance, consider how long the elimination period is (the period for which the policy won’t pay benefits) and what the weekly benefit amount is - typically 66.67% of your regular pay. For long-term disability coverage, you will want to look at the benefit amount and also how long you will be covered based on being unable to perform in your own occupation (versus any occupation).
5. Bonus Structure
Does your employer award bonuses for achievements, good performance, or hitting milestones? Additional pay on top of your salary can be a lucrative benefit.
How to assess the value of a bonus: Ask about your employer’s bonus structure! Every company is different, and there are no standards for bonuses. Ask questions like:
- When are bonuses typically given?
- How often are bonuses awarded?
- What must an employee do to qualify for a bonus?
- How much is the typical bonus?
- What are the tenure or employment requirements for receiving payment? If you resign, will you still be paid the bonus based on the work you completed? If you start partway through the year, is the bonus or incentive prorated?
Since a bonus is typically given as a check or direct deposit, the monetary value of a bonus is easy to see.
6. Incentive Plans
Incentive plans are slightly different from bonuses because they are often tied to quantifiable performance metrics and specific business goals. For instance, some employees get commission for meeting certain sales goals. Incentive plans should be clearly defined, with transparent milestones and an obvious path to getting the payout. Typically, incentive plans are public, involving a “scoreboard” that employees have access to as they track performance.
How to assess the value of an incentive plan: The questions for evaluating an incentive plan are similar to evaluating a bonus:
- How often is compensation awarded?
- Does my position qualify to participate?
- What is the compensation structure?
- Is it likely that I’ll meet the incentive plan requirements?
- What do other employees earn from incentives, on average?
The monetary value of an incentive plan may be more difficult to estimate, but you might be able to get an idea of the range you can expect based on what other employees typically earn.
7. Stock Options
Your company may also offer stock options as a part of the employee benefits package. These options give an employee the right to buy, or exercise, a set number of shares of the company stock at a preset price within a particular time frame known as the exercise window.
Stock options aren’t as immediate as other benefits, but they have the potential to pay off big down the road if the company grows.
How to assess the value of stock options: You’ll need to start with a few basic pieces of information like the company’s valuation and current 409A price. Stock option offerings can be complex, with far-reaching financial implications and concerns. It's always best to consult an expert. If you're looking to build a basic understanding before getting professional recommendations, check out this article.
8. Paid Time Off
Paid time off— commonly referred to as PTO— may include vacation time, sick leave, or personal leave. When you take this time off, you are still paid as if you were working.
How to assess the value of PTO: Divide your salary by the number of working days per year. This gives you your daily pay rate. Multiply what you make in a day by the amount of PTO days. If the company has an unlimited PTO policy, multiply your daily pay by the number of days you would reasonably expect to take off. Other aspects to consider:
- Does the company allow you to carry over all or a portion of your accrued hours from year to year, or is it a “use it or lose it” plan?
- Is there a cap on how much PTO you can accrue?
- Does the company offer the ability to cash out PTO or purchase additional PTO?
- Does the company accrue your PTO each pay period, or is it awarded in a lump sum at the beginning of the year?
- How much PTO is awarded in a year and the award is based on your tenure, how many years do you need to work to achieve the next accrual level?
9. Financial Planning
Some companies offer financial planning services alongside retirement plans. Financial planners can help you get on the right track with saving and investing and help you meet your large financial goals in life.
How to assess the value of financial planning: You can estimate the value of this perk by researching the average fees and commission of financial planners in your area.
10. Professional Development, Education Opportunities, and Student Loan Assistance
It is becoming increasingly common for companies to offer education stipends or student loan repayment assistance for employees that have sought out educational opportunities.
How to assess the value of educational stipends: Companies typically give employees a set allowance for this purpose or will reimburse qualified expenses up to a certain amount. Some employers may limit the types of degrees that are eligible for these benefits to those that relate to the work you are doing, so double-check what the requirements are.
11. Wellbeing Programs
Wellness incentives and wellbeing programs are becoming more popular as employers look for ways to encourage physical and mental health in their employees. These stipends may come in the form of gym memberships, class memberships, or money for recreational activities and equipment.
How to assess the value of wellness stipends: Companies typically give employees a set allowance for their wellbeing programs or will reimburse qualified expenses up to a certain amount.
12. Transportation Stipends
Do you take a train, bus, or other mode of public transportation to work? Some employers offer a transportation stipend for employees who do not use a parking space.
How to assess the value of transportation stipends: Companies typically give employees a set allowance for this purpose or will reimburse qualified expenses up to a certain amount.
13. Remote Work Stipends
As remote work gains in popularity, more and more companies are offering stipends and reimbursements related to working from home. These stipends can make remote work even more appealing, since you’ll also be enjoying reduced transportation costs by not going into the office.
How to assess the value of remote work reimbursements: Just like transportation funds, companies typically give employees a set allowance for this purpose or will reimburse qualified expenses up to a certain amount.
14. Other Office Perks
The company may also offer additional benefits like:
- Equipment, such as a laptop, phone, etc.
- Office supplies
- Fully stocked kitchen
- Team meals
- Dog-friendly office
How to assess the value of office perks: While some of these may seem like they won’t make a difference in your bottom line, they’re still important to consider. You never know when you’ll need the option to be there. For instance, bringing your pup to work can save you from having to hire a dog walker.
Tally Up and Compare
To get a complete overview of your current or potential employee benefits packages, tally up the approximate values of each of these categories. You may find that your benefits package is worth thousands of dollars more than you thought, making it an important factor in your overall compensation.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer Member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.