Editor’s Note: This story originally appeared on The Penny Hoarder.
Getting a job offer can be thrilling — and if it’s the only option on the table, it usually makes sense to take it (for now, at least).
But what about when you’re comparing a new job against your current role or, even better, fielding multiple offers from prospective companies?
While you might be tempted to just look at which job pays the higher salary, there’s a lot more to consider when evaluating a compensation package from a company. That includes paid time off, health insurance and taxable benefits.
Plus, you’ll want to factor in the hidden costs of having a certain job, like gas money for a longer commute, a new wardrobe or parking in an expensive downtown area.
Trying to figure out what your compensation package is worth compared to another job offer? We’re here to help you add it all up.
7 Factors to Consider When Evaluating a Compensation Package
When you get a job offer, your first instinct is probably to look at that salary number. But benefits account for 29.7% of an employee’s total compensation, according to the Bureau of Labor Statistics.
“Compensation encompasses so much more than just salary,” said Alison Norris, a former advice strategist for SoFi. “Choosing a position [because of] your overall compensation will often be far more financially advantageous than focusing on the one that just has the higher base salary.”
But how do you compare the number on a paycheck to benefits like paid dental insurance? Here are areas to consider when evaluating job offers.
1. Base Pay
When evaluating multiple compensation packages, be sure you’re looking at comparable dollar amounts. If one job pays hourly and another has a salary, convert the latter into an hourly wage for a true comparison.
“If you’re having trouble and really want to compare apples to apples, looking at your hourly rate — even if you’re salaried — is often easier,” said Norris.
Bonuses — both sign-on and annual — can make comparisons a little more challenging. If your job includes a potential annual bonus tied to company performance, ask the recruiter for data about how often the bonus has historically been paid out (and if it’s been in full).
And if you’re comparing a freelance position to a staff one, don’t forget to factor in employer contributions and taxes you’ll owe as an independent contractor.
“If one position is a W2 position and the other is an independent contractor, you should add in the taxes your employer would pay on your behalf, which can be huge,” Norris said. “Employers pay [6.2%] of your income in Social Security and Medicare taxes.”
2. Paid Time Off
Paid time off (PTO) is an important benefit to consider, but how can you calculate its value? One way is to assign a dollar value to paid time off based on your hourly rate.
Multiply the total number of hours in your work year by your pay rate, then divide that number by total work hours you’ll actually work by subtracting the paid time off.
For instance, the number of workday hours per year for a 40-hour workweek is approximately 2,080 hours (40 x 52).
If Job A offers $20/hour and a week (40 hours) of paid time off, calculate $20 x 2,080 = 41,600 / (2,080 – 40 = 2,040) = $20.39/hour.
If Job B offers $19/hour and three weeks (120 hours) of paid time off, calculate $19 x 2,080 = 39,520 / (2,080 – 120 = 1,960) = $20.16/hour.
Don’t forget to include paid holidays, volunteer days and sick leave — three weeks of vacation isn’t nearly as generous if you have to use up days for Christmas or the flu.
And in case you’re thinking about expanding your family, it’s a good idea to compare parental leave policies.
What About Unlimited PTO?
If a company advertises unlimited PTO, it can be more challenging to calculate the value. Unlimited paid time off is never truly unlimited; you still have to work most of the time.
In fact, recent data suggests employees with unlimited PTO actually take less (10 days) PTO than what the average American takes (20.3 days).
If you receive a job offer from a company touting this benefit, consider asking your recruiter how they encourage employees to take advantage of the benefit — and what data they have about the average number of days employees take.
3. Taxable Benefits
After determining your base pay, it’s time to start categorizing benefits according to whether they’re taxable.
Pre-tax benefits allow you to enjoy the perk counting it toward your compensation.
“One dollar worth of pre-tax benefits — ones that you receive without having to pay income taxes — nets far better than $1 of additional salary raise or a taxable benefit,” Norris said.
Some examples of pre-tax benefits include:
- 401(k) matches
- Paid disability insurance premiums
- Contributions to Health Savings Accounts
- Employee discounts
Norris pointed out that one trendy new benefit, student loan repayment, may not be as valuable as it seems since employees are still responsible for paying the taxes.
4. Health Insurance
Health insurance benefits should be a top consideration when evaluating compensation packages, unless you have health insurance through a spouse that you’d prefer to keep.
Successfully assessing health insurance plans means you’ll need a good grasp of how health insurance works.
Research terms like premiums, deductibles, copays, and coinsurance before comparing plans at different companies.
Ask your recruiter about which plans they offer (often, employees can choose between a high-deductible plan with an HSA or a more expensive low-deductible plan) and how much they cost.
Remember, those annual premiums come out of your paycheck. So even if one job pays more, you could make less if they have a significantly more expensive health insurance plan.
In some cases, companies may cover the cost of premiums for you or may contribute to your HSA. Consider these benefits when comparing options.
Still need help? Here are 11 health insurance questions to ask before accepting a job.
5. Professional Development
A benefit that people often overlook, largely because it has no clear-cut monetary value, is a company’s commitment to professional development.
If a company has a learning stipend or tuition reimbursement program, ask for a specific amount to include in your appraisal of the compensation package.
And while you can’t necessarily put a dollar amount on it, keep in mind that companies more invested in training their employees could put you on a path to a more lucrative career down the road.
6. Other Benefits
In recent years, some companies have expanded their benefits. This could include everything from on-site child care and gyms to discounted pet insurance and group life insurance.
Ask your recruiter for a full list of those additional benefits, but only factor in the ones you’d actually take advantage of.
But don’t count on some of these benefits to stick around forever, especially as companies look to make their businesses more recession-proof.
In what the Washington Post has dubbed the “perk-cession,” tech giants and other companies with unique perks have begun tightening their belts by cutting things like free laundry services and fully stocked fridges.
It’s probably for the best, anyway. While Ping-Pong tables, free booze, and an on-site masseuse were once attractive offers, today’s employees increasingly want something different.
They want a company culture that reflects their values and promotes a healthy work-life balance.
7. Non-Reimbursed Expenses
The excitement of a job offer may leave you seeing only the positives. However, you should also calculate the expenses associated with a job — and subtract those from the offer.
For instance, if one job is significantly farther away than another, a higher salary offer may not make up for the money you’ll spend on gas (not to mention the loss of personal time because you’ll have a longer commute).
Parking costs, an upgraded wardrobe, a dog walker if the job is too far to come home at lunch or a babysitter if you’ll have to travel regularly — these are all additional costs to consider.
If you’re weighing a work-from-home job, ask about expectations and stipends. Some companies may offer new employees money to set up their home office. Others may not have those perks for remote employees.
In fact, you may have to dig into your own pocket to upgrade your internet to be fast enough for client calls and internal Zoom meetings.
How to Negotiate a Compensation Package
OK, you’ve stacked up a new offer to your current job or compared competing offers. Now what? Don’t skip this crucial step: negotiate.
Prospective employers should not be surprised or offended by it. But what components of a compensation package are most negotiable?
Salary is the component that most of us are accustomed to negotiating, but you can also negotiate for more paid time off and reimbursement for training and development.
You may be able to advocate for a hybrid work schedule if that’s important to you.
Don’t forget you can leverage an offer from another company to see if an employer will sweeten the pot.
If you’re open to staying at your current job but have an offer from another company, see what your employer might do to get you to stay.
Don’t Forget About Your Own Happiness
Money may not be able to buy you happiness, but it can certainly buy the basic things you need to survive — plus fund the things you’re passionate about.
And if you’re not concerned about paying for your bills, your mental health will likely improve (and hey, you may be able to afford therapy if you want it!).
But there’s still more to happiness than a salary or even the total job compensation package. Think about the company culture and mission.
Will you feel fulfilled doing the work each day? Are you passionate about the role and what the company does? Does the company support the same values that you hold? Is the leadership empathetic, and how do they show they value employees?
There’s no way to put a monetary value on something like a CEO who truly cares about their employees, a company that encourages you to shut your laptop at 5 p.m. or a job that makes you feel like you’re making a difference in the world.
But those things, if important to you, should absolutely be part of your decision-making process.
