Next Steps

The following presentation of slides will cover all the basics you need to know about possible employee benefits. You’ll be tested at the end, so you can use these slides to improve your previous test score, and learn something to prepare you for making the most of employee benefits!

On the Job

There’s more to learn when you start your career than just the skills you’ll need to do your job well. One area well worth pursuing is making the most of your employee benefits. Depending on what’s important to you — ranging from health insurance to a flexible work schedule — these benefits can help make a job really rewarding, personally as well as financially.

While you may not learn about all the workplace benefits available to you until you take a job, it pays to investigate the range of benefits an employer offers as part of your job search.

During your interview, the people you meet with will probably mention the benefits as part of their pitch. If that’s not the case, or if they don’t mention something that matters to you, don’t be embarrassed to ask. Wanting to know which benefits a potential employer provides shows you’re serious about the job.

The Workplace Today

Some benefits are important to almost every employee  — paid vacation may be one example — while other benefits — like onsite child care — are essential for some people but not for others.

Some benefits are now the norm, including programs that make it easy for employees to pay for some or all of the cost of public transportation, van pools, or parking with tax-free income.

In many cases, though, the benefits an employer offers are directly related to the organization’s structure and the work environment. For example, it’s the norm in some places to offer or even encourage flexible schedules, including working from home several days a week. In fact, these employers may provide cell phones, laptops, and Internet access to promote this approach.

But if there’s a benefit you care about, it never hurts to ask, especially if you’re willing to trade off — say a slightly lower salary for more free time.

Managing Your Paycheck

There’s no question that your paycheck is the most tangible benefit of being an employee. How much you earn and how frequently you’re paid are critical to how you manage your living expenses.

Don’t be afraid to ask for a somewhat higher salary than the initial offer, especially if you have relevant experience or specific skills, or if you’ve received a better offer from another employer.

Whatever your salary, certain decisions are always smart.

You can do yourself a big favor by signing up for direct deposit. This means your net pay goes straight into your bank account every pay period. In fact, some employers will split the amount between a checking and savings account if you ask.

With direct deposit, you don’t have to make a trip to the bank or wait for the check to clear. As a bonus, you may save money since direct deposit may make you eligible for free or reduced-charge checking.

Understanding Withholding

You are going to have to deal with the unfortunate reality that your take home pay is a lot less than your gross salary — often 40% less after withholding. Some withholding that reduces your take-home pay is mandatory, and other deductions or deferrals depend on choices you make. 

One area where there’s no choice: you’ll have to prepay taxes whether you want to or not, including:

• Federal income tax
• State income tax
• FICA taxes for Social Security and Medicare

Your take-home pay is also reduced by amounts you agree to have withheld to pay for:

• Health insurance through your employer’s plan
• Pretax contributions to a retirement savings plan, a health savings account, or both

Pretax withholding actually works in your favor because it reduces your current taxable income and so the income tax you owe.

To get a feel for your take-home pay and what you’ll have available to spend, try this paycheck calculator: http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/salary-paycheck-calculator.aspx

The Paperwork

There’s some pretty complicated paperwork to get your withholding right.

The information you enter about your income, tax filing status, and exemptions on IRS Form W-4 determines how much your employer withholds to prepay federal income taxes. You earn no interest on the surplus if too much is withheld, and could owe a penalty if the amount is too little. So it’s in your best interest to get the W-4 right. If you’d like some help, check out the IRS simulation at http://www.irs.gov/app/understandingTaxes/hows/mod01/sim_mod01_04.jsp.

There are also enrollment and contribution forms for other benefits, like retirement plans and flexible spending accounts. And it pays to fill them out carefully. You can usually modify the choices you make at a later date, but you may have to live with those decisions for a calendar year.

Don’t hesitate to ask your parents, your company’s HR department, or your benefits administrators for help. They have all dealt with these forms before.

Health Insurance

Medical bills can become very expensive very quickly, so health insurance is one of the most important employee benefits. Lucky for you, it’s also one of the most common. You employer may pay the full cost of the premium, which is the cost of coverage, or you may have to pay a percentage by having it deducted from your paycheck.

You may have a choice of different insurance plans or you might be offered just a single option. Either way, it’s smart to enroll, as it’s likely to be cheaper than any other way to get this protection. If you do have a choice, it pays to take the time to compare the costs and the benefits of each plan, as they can vary significantly.

You’ll find some good tips for dealing with this important workplace benefit at the Department of Labor’s page on ten things you can do to make the most of your health benefit options.

Health Savings Accounts

With a health savings account (HSA), you can defer pretax income, up to an annual limit, to the account and use the money to pay for qualified medical expenses, including prescription drugs. 

The expenses you cover actually cost less because no tax is due on the money you’re using to pay for them. Plus, any unspent balance can be rolled over year after year, so you never lose the amount you’ve put in. You also have the right to move the account if you change jobs.

However, there’s a catch. You can open an HSA only if you’re enrolled in a high-deductible health plan (HDHP). If your employer doesn’t offer one, or if you decide some other plan is a better value, you’re out of luck with an HSA.

What’s more, if you dip into your HSA for nonqualified expenses, you’ll owe income tax on the amount you withdraw plus a 10% tax penalty if you’re younger than 65.

Employer-Sponsored Retirement Plans

If your employer offers a retirement savings plan, you’ll thank yourself later if you start contributing as soon as you’re eligible. Depending on the type of employer you work for, the plan you’re offered might be a 401(k), a 403(b), a 457, or Thrift Saving Plan (TSP). And be prepared: some 403(b) and 457 plans may be called by different names in different states or by different employers.

All of these plans have similar features, including annual contribution limits. You participate by deferring a percentage of your salary to the plan, and that percentage is withheld every pay period. If it’s pretax income, it reduces the current income tax you owe.

No taxes are due on earnings in your account. In the tax-deferred version of these plans, you defer pretax income, which reduces your taxable income for the year, and you owe taxes only when you withdraw. In the tax-free Roth variation, you defer after-tax income, but withdrawals are free of federal tax provided you follow the withdrawal rules.

Making Retirement Contributions

When you join a retirement savings plan, you decide how to invest your contributions. Usually you choose from a menu of mutual funds available through the plan. The idea is to pick a combination of funds that will help you reach your investment goal  — often long-term growth if you’re in your 20s or early 30s.

Some employers enroll you automatically. That’s good, because it’s one less decision you have to make. In this case, there’s a default investment option and contribution rate. You can change that rate and choose different investments at any time. You can also opt out, which is not such a good idea because you’ll miss out on getting an early start on retirement savings.

How large the balance in your retirement plan will grow depends on the amount you contribute, the investments you select and how they perform, and how long you keep the account open.

The Icing on the Cake

You don’t want to overlook a potential benefit that can make a huge difference in the size of your retirement account: a matching contribution from your employer.

Employers aren’t required to provide a match, but those who do typically add pretax money to your account, figured as a percentage of what you contribute — perhaps 50% of what you put in, up to 5% or 6% of your salary. 

Here’s an example: You earn $50,000 and contributed 6%, or $3,000. Your employer adds 50% of the $3,000, or $1,500. So a total of $4,500 goes into your account during the year.

The only catch is that you have to work for the employer for a minimum amount of time before you have a right to keep the match and the earnings it produces. That’s called being vested. The vesting period is described in the plan documents your employer will provide. It can’t be longer than six years but could be shorter.

Taking Your Money With You

If you change jobs, your retirement plan, health insurance, and other benefits change too. There can be great reasons for moving on — including better benefits. But leaving a job just before you’ve worked there long enough to be vested may mean leaving retirement money on the table. It may pay to wait, especially if it’s only a short time.

You may decide to roll over your retirement account balance to your new employer’s plan or an individual retirement account (IRA) to keep the money tax deferred. Keeping retirement money together can be easier than trying to keep track of several plans over your working life.

One thing to avoid is taking the money out of your retirement plan when you change jobs. You’ll owe income taxes plus a 10% tax penalty — and you’ll have to start saving all over again.

The Department of Labor has a useful page on your healthcare choices when you change jobs.

Flexible Spending Accounts

A flexible spending account (FSA) lets you design part of your benefits package to suit your needs. You defer pretax income to the account and use that money to pay for qualifying expenses. This effectively makes the things you pay for less costly than if you had to pay for them with after-tax income. 

Common expenses you can cover with an FSA include:

• Uninsured medical expenses
• Over-the-counter medications with prescription
• Child care
• Extra life insurance

But be warned. You must decide how much money to set aside in an FSA before January 1 of the year you’ll draw on the account. You can’t roll over the
amount you don’t spend from one year to the next, though some plans give you up to three months after year end to use up your balance.  But when the deadline arrives, any amount you haven’t used is gone for good.

Additional Benefits

You may discover that some of your job benefits will help your career. This is especially true if your employer agrees to pay for additional education or training.  New and improved skills can earn you a promotion, greater job security, a higher salary, or a more senior position at your next job.

Other benefits, which are also not taxable, may improve your quality of life or peace of mind. An onsite gym facility is convenient and saves you a good deal of money, as do meals the company provides.  Employee discounts can be a big plus for you and your wallet, as can group life insurance, moving expense reimbursements, and retirement planning services. 

Employee stock options link your current work to potential long-term financial benefits if your company is successful.

Counting Benefits in Your Job Search

While salary, professional growth opportunities, the workplace atmosphere, and your colleagues are all essential factors in making a job decision, the benefits an employer offers are also worth considering.

As part of your job search, make a list of the benefits that are important to you:

• Ask which benefits are part of the package you’re being offered.
• Find out when you would be eligible for each of them and if the timing is negotiable.
• Inquire about benefits that haven’t been mentioned but you’d like to have, if possible.

While no single benefit is likely to be the deciding factor in choosing one job over another, a combination of benefits that matter to you may help you decide between one offer and another, or between whether it pays to stay in the job you have or move on.

Take the Test

Thank you for reviewing the slides.  You are almost done!  Next, you will take a 10 question post-test to assess what you have learned.  Your scores will be sent to your email address and shared with the CashCourse administrator on your campus. 

Download the Employee Benefits Action Plan to get you ready for making the most of your employee benefits!