Understanding Salaries and Benefits
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Hourly wage vs. Salaried positions
The federal law requires employers to pay employees overtime for any hours worked over 40 hours per week. However, hourly waged employees do not get paid when there isn't any work. Salaried employees are paid an annual salary. They are not paid by the hour; therefore, they do not receive overtime when more than 40 hours are worked per week.
How take-home pay is computed
Take-home pay is another name for net pay. Your take-home pay is your pay after taxes and other contributions are deducted from your gross pay. The following taxes and benefits may be deducted from your gross pay.
Federal Withholding Taxes
The W-4 form is used to figure federal withholding taxes. It asks how many dependents or allowances you have. Dependents are people you support financially such as your spouse, children and elderly parents. Don't forget yourself. You count as one. The more dependents you claim, the less money that is deducted from your check for federal taxes.
Federal Insurance Contribution Act (FICA)
FICA is Social Security Retirement Tax. That money pays a pension to people who reach retirement age. If a person dies with children younger than 21, social security also pays benefits for the children. Social security also pays benefits if a person is disabled for more than 12 months. FICA also includes Medicare tax which helps pay for the medical care of senior citizens.
Flexible Spending Accounts (Cafeteria Plans)
Flexible Spending Accounts also called Cafeteria Plans is a fringe benefit plan that allows you to take pre-tax dollars from your paycheck to pay for qualified medical and dependent care expenses. Your contributions are deducted uniformly from each paycheck on a pre-tax basis. After you incur the expense (for medical or dependent care), you are reimbursed from your account. This system reduces the actual cost of the service by the amount of your tax savings. The drawback to this type of account is that if you don't use the money put aside during the calendar year, you lose it. So, be sure to select the amount carefully.
401 K Plans
This is a pension (retirement) benefit that allows an employee to put aside a portion of income each year. The employer may provide matching funds.
Health insurance assists the employee with paying medical expenses. Some companies pay 100% of the employee's premium and other split the cost of the premium with the employee. Coinsurance is a percentage of the charges that the health plan pays, typically 60-90%. Co-pay is the percentage of the charges for which employees are responsible when receiving covered services. Usually a deductible is applied to your health insurance plan. This amount of out-of-pocket that an employee pays before the health care plan will begin paying. Out-of-Pocket Maximum (OPM) is the maximum amount an employee must pay for eligible expenses each year before the health plan begins paying 100% of subsequent eligible expenses in that year.
Some companies provide a life insurance policy for employees in which you designate a person (beneficiary) to receive a payment from the insurance company should you die.
Paid Time Off
An employer may offer paid time off for the following situations:
- Funeral Leave - A leave given when a member of the immediate family dies.
- Holidays - The employer may designate paid holidays such as New Year's Day, Christmas, Thanksgiving, Memorial Day.
- Maternity, Paternity and Adoption Leave - Time off for a child's birth or adoption. The law requires that maternity leave is treated as sick leave.
- Military Leave - Members of the National Guard or Reserve attend active duty training at least two weeks each year. Some employers voluntarily pay for the time an employee is on military leave or pay the difference in salary.
- Paid Sick Leave - Employers usually establish a limited number of paid days you may use for sick days each year. If you exceed the limit, you do not receive pay for days you do not work due to illness. Some employers allow an employee to accumulate sick time from year to year.
- Vacation Leave - Paid time off. The length of vacation time usually increases the longer a person works at a company.
- Personal Leave - Some companies allow a small amount of paid days of to be used for personal business that can only be accomplished during the regular work day.
Other Possible Benefits
- Profit Sharing - Companies share the profits with their employees.
- Tuition Reimbursement - Companies may pay tuition for employees working toward a degree or taking other work-related courses.
Questions to Ask a Prospective Employer
Here are questions about salary and benefits to ask at an interview if you are a serious candidate for a job.
- What is my starting salary?
- How are salary increases determined?
- What health insurance plan will I get?
- Who pays for my health insurance? What is my premium?
- Does your company offer dental insurance? Vision Insurance? Life Insurance? How is it paid for?
- Is there any reimbursement for tuition?
- How will I be reimbursed for work-related travel expenses?
- When will I be eligible for profit-sharing?
- Does the company pay relocation expenses?
- What hours will I work?
- How many vacation days and holidays will I get a year?
- Is there overtime pay or compensatory time off?
- What is the total value of my compensation package?
- What is the schedule of paydays?
Definition of Important Insurance Terms
- Coinsurance. A percentage of the charges that the health plan pays. Typically 70, 80 or 90 percent.
- Co-pay. A percentage of the charges for which you are responsible when receiving covered services.
- Covered Service. A provider's service or supply for which the plan will pay. Not all services prescribed or performed by a provider are necessarily a covered service.
- Deductible. The amount you must pay out of your pocket each benefit period before your health care plan will begin paying. Some services do not require payment of a deductible before coverage begins.
- Out-of-Pocket Maximum (OPM). The maximum amount you must pay for eligible expenses each year before the health plan begins paying 100 percent of subsequent eligible expenses in that year.