16—Lever #1: Your Income (Part Four—Employer Benefits as Part of Your Total Compensation)
There's gold in them thar hills
When you start a new job, especially if it’s your first, it's natural to focus on the number on your paycheck.
While salary is a significant part of your earnings, it’s only one piece of the pie. Understanding employer benefits as part of your total compensation ”package” is crucial to making informed job and financial decisions.
Employer benefits are non-salary perks and provisions that employers offer to attract and retain talent. You may get them, even if you don’t have a lot of talent, just because you’re an employee. That said, it may be a little while before you get certain benefits; the company may want to see just how much talent you have and how you will use it. (I’m kidding; I think they just want to make sure you’ll probably stay there a while.)
These benefits may include health insurance, retirement plans, paid time off, and cool perks like gym memberships, health and wellness programs, or trips to exotic islands for paid sabbaticals (just kidding). While these benefits may not feel as tangible as a paycheck, they often have significant value.
So why should you care? Doesn’t everyone get this stuff; isn’t it “table stakes” in the employer competition for good talent? Well, yes, to an extent, but some companies provide much better benefits than others (just as some companies will pay more for the same job than others). If you can snag one with both—good pay and benefits—you’ve hit the jackpot, as many companies offer one but not the other.
Besides the fact that they’re highly beneficial, the cool thing about benefits is that most have "hidden value." For example, employer-sponsored health insurance or matching contributions to your 401(k) can add thousands of dollars to your overall compensation package each year.
Others, like health insurance, life insurance, and disability coverage, protect you from unexpected events that could be financially catastrophic and otherwise derail your financial goals.
You may also get paid time off (PTO) and wellness perks, which may not have a direct dollar value (except maybe the cost of a gym membership) but can contribute to your overall quality of life and job satisfaction. I have a young friend in my church who just got three months of PATERNITY LEAVE after his wife (not he) had a baby! Pretty sweet.
The bottom line: When reviewing a job offer or your current employment situation, consider your benefits and their worth. Health insurance and retirement plans are the two "biggies" regarding your long-term financial success.
Unfortunately, the days of getting a "Cadillac" healthcare plan with low premiums, no deductibles, and no maximums are long gone. So those are things to look at when comparing health plans. What would it cost you to get the same coverage independently? If the company offers a subsidized group insurance plan, you'll pay a lot more if you go it alone.
You could calculate the annual employer contribution to health insurance premiums or retirement accounts by subtracting what you're paying now for the employer plan from what you'd pay if you were doing it individually for a comparable plan. You may be surprised.
Retirement plans are the next biggie. Does your employer offer a 401(k) plan (not all do)? If so, do they provide matching contributions? I used to work for a bank that matched my contributions dollar-for-dollar up to 6% of my gross income. That means if I made $100k and contributed 6 percent ($6,000), they'd match it with another $6,000 for a total annual contribution of $12,000, 12 percent of gross income in my retirement savings in one year—not bad!
Another way to look at it is that I got an immediate 100% return on my 6% investment. Personal finance rule #1: Don't refuse free money (if it's legit).
A few companies still offer pensions, but these are going the way of the dinosaurs. This is where they put money into a big pot, invest it, and then pay it out as an annuity to employees who retire after working there for a million years. Most of you will never see one, so you must become your CFO/CIO and create your pension if you want to retire.
There are others. Paid time off is free money—you're getting paid for not working. This may also help make your work life easier; we all need some R&R sometimes.
Some companies offer benefits like tuition reimbursement. I got an MBA on the company's dime worth tens of thousands of dollars.
I get it—it’s tempting to focus on immediate cash flow, but benefits play a crucial role in your present and future financial picture. A job with a slightly lower salary but excellent benefits may be a better total compensation package than a higher-paying job with minimal ones.
Understanding and using your benefits effectively is key. If there are things you don’t understand, talk to a “human” (that’s what we used to call HR reps). Before accepting a job or switching employers, look closely at the whole package. You might be surprised at the value hiding beyond your paycheck.
For reflection: If you’re looking for a job, do you inquire about and then analyze the company’s benefit package in addition to the pay? If you’re in a career with benefits, how well do you understand them and the value that they provide? Also, when was the last time you expressed gratitude to the Lord for the blessing of benefits—remember, most people in the world don’t get them. Also, remember that the blessings and benefits we receive as children of God are far greater than anything a company can offer.
Verse: “Bless the LORD, O my soul, and forget not all his benefits” (Psalm 103:2, ESV).