How to Compare Employee Benefits Packages

FT Contributor  | 

Deciding whether to accept a job offer involves more than looking at the salary and the job duties of the position for which you applied. If you’ve received multiple job offers, or you’re thinking about taking a similar position with a different company, comparing benefits packages should be a part of your decision-making process.

Nearly 38% of your overall compensation can be determined by the benefits, including health insurance coverage, retirement plans, as well as vacation and sick time, and not all employers are equal when it comes to offering competitive benefits to employees.

Even with a good salary, inadequate benefits can diminish you satisfaction with your work, and affect your overall earnings and financial security over time. Therefore, when you receive a job offer, look at the benefits with a critical eye to determine if making the move is a smart choice.

What Is Considered a Good Benefits Package?

Determining what constitutes a “good” benefits package does, at least to some extent, depend on your individual priorities and financial goals. For instance, you might value work-life balance and the option to have some flexibility in your schedule over a higher salary. As you evaluate job offers and benefits packages, it’s worth spending some time thinking about what matters to you, outlining your overall goals, and determining which benefits are non-negotiable.

That said, there are some benefits you should always look for, no matter your own preferences. These include:

  • Health insurance coverage, ideally with the employer paying for at least 50% of the policy;
  • Dental and vision insurance;
  • Life insurance;
  • Disability insurance (long and short term);
  • Retirement plans;
  • Paid time off (sick, vacation and personal time);

Some employers offer additional benefits, including tuition assistance, discount programs, gym memberships, daycare, and more. However, regardless of these extra perks, at a minimum you should receive insurance, retirement, and time-off benefits. If these benefits aren’t part of the package, or don’t meet your needs, you may be able to negotiate them as part of your overall compensation package.

How to Calculate a Benefits Package

Your salary is just one part of the overall compensation package in a job offer. Again, benefits can comprise about 30% of the total package. To determine the actual value of the benefits, do some simple calculations. These include:

  • Determine the value of the time off by determining your daily wage (whether you are salaried or hourly) and multiplying it by the number of days off you’ll get.
  • Determine the value of retirement contributions as a percentage of your salary.
  • Add the value of employer insurance coverage contributions.
  • Estimate the value of other perks (e.g., gym memberships, parking, discounts, daycare);

By adding these benefits and combining them with the salary figure, you’ll get a better idea of your overall compensation.

Benefits Package Comparison

So how do you compare different benefits plans? Knowing what to look for can help you make the best decision, as some benefits may appear more generous than they are at first glance.

Understanding benefit options can also help you make sense of Cafeteria Benefits Plans, also known as Section 125 plans. Under a Cafeteria Plan, employees can choose from a selection of pre-tax benefits, creating a package that works for their needs. These plans typically include options for health coverage, retirement contributions, health savings plans, and disability and life insurance coverage, requiring you to determine how much money you want to allocate to the plan at the beginning of the year.  

These plans can be complex to manage, and may result in you losing unused benefits or paying more out of pocket if you haven’t contributed enough money to cover your chosen benefits. However, they do allow you some flexibility to choose the benefits that are most meaningful to you.

Retirement

It’s never too early to think about retirement, and a good benefits package is one that includes options to help you save for your Golden Years. Ideally, the employer should contribute to your retirement account as part of your benefits package.

Most retirement plans are one of two types: a defined-benefit plan, or a defined-contribution plan. A defined-benefit plan is what has traditionally been known as a pension. With these plans, the employer makes a specific contribution to your account each pay period, with a guarantee that you’ll receive a monthly income once you retire. If an employer offers this type of plan (which is becoming increasingly rare), read the information carefully to determine how much the contributions will be, when you qualify to access the money, and what happens if you leave the company before retirement.

A defined-contribution plan is what most people think of when they hear retirement plan, as it includes 401(k), 403(b), or IRA plans. With these plans, employees contribute a set amount from each paycheck, pre-tax, to the retirement fund. Employers may or may not match these funds, but the best benefits packages do include some type of match.

When evaluating defined-contribution plans, consider the employer’s rate of matching, any limits to the employer contribution, and when you become vested in the plan, or have full ownership over the matched funds. Some employers vest contributions from day one, while others require a certain length of service in order for you to keep the matched funds.

Health Insurance

Health insurance is one of the most important benefits to look for, and also potentially one of the most confusing to evaluate. To determine how valuable the plan will be, look beyond how much you’ll contribute via payroll deductions, and consider how much you’ll spend out of pocket on co-payments, deductibles, and prescriptions. Also look at the network of providers, and whether it includes your current doctors. Using an out-of-network provider can drive up your costs, as your insurance may require a higher copayment or not cover the services at all.

Pay close attention to whether the plan is a Preferred Provider Organization (PPO), HMO, or another type of network. Most employers offer either an HMO or PPO. An HMO, or Health Management Organization, requires you to have a primary care provider who will coordinate all of your care. This means you cannot see a specialist without a referral, and the plan won’t cover any care you receive out of the network or without prior authorization. PPOs are a more expensive option, but they allow you to see any provider whenever you wish, even those outside of the network.

Some employers also offer HSA, or Health Savings Accounts. With these plans, you contribute a set amount of pre-tax money to the account, which is then used to cover your health expenses. HSA plans are typically paired with health insurance plans with high deductibles, with the understanding that the funds from your HSA will be used to pay those expenses. Because the premiums for your HSA plan are much lower than those for a PPO or HMO plan, you can potentially save thousands of dollars annually.

Dental and Vision

Much like health insurance, evaluating dental and vision plans means looking at what is covered, which providers are part of the plan, and how much you’ll pay in premiums, copayments, and deductibles. In many cases, dental and vision coverage is built into the health insurance plan, so you don’t pay a separate premium. However, in some cases, you may need to select this insurance as an add-on, which will increase your contribution.

Life Insurance

Life insurance is a common employee benefit, and might be one that your employer provides without any cost to you. Even if you do have to contribute to life insurance, it’s likely to only cost a few dollars each pay period. Most employer-provided life insurance policies offer a pre-set amount should something happen to you; for instance, a year’s salary. You might also have the option of purchasing additional coverage at a significantly reduced rate, and without a physical exam, making this a valuable benefit.

Disability

Another common benefit is disability insurance coverage, both short and long-term. Short-term disability coverage is typically covered by the employer, and will provide you with a percentage of your income if you need to be out of work beyond your sick or vacation time to recover from illness or injury.

Long-term disability coverage is more expensive, and you will most likely need to cover the premiums yourself. This insurance provides a percentage of your income for months or even years if you are injured or sick and can’t work, even if your injury takes place off the job.

Vacation

American employers are not required to provide paid vacation time to employees, but most do. The typical offer is one or two weeks of vacation time in the first year of employment, and you should see increases in the amount of vacation time you can earn tied to how long you remain with the company. In addition to vacation time, employers may also offer specific paid holidays, and an allotment of sick or personal days.

A growing number of employers are switching from pre-determined amounts of vacation and sick days to a “paid time off” or PTO system. With PTO, employees earn time off equivalent to the hours worked. That time goes into a “bank” that can be drawn on anytime you want to take time off.

While this can be beneficial if you want to take an extended vacation in the future, it can also mean that you don’t get days off that you are used to getting, such as major holidays. Most PTO plans group all types of time off, including vacation, holidays, and sick days, into one pool, so regardless of why you take time off, it’s withdrawn from your account.

When comparing vacation benefits and PTO plans, then, be sure you are clear on some important facts, including:

  • How time off is allotted for vacation, sick, and personal time;
  • Whether holidays are included in PTO
  • How PTO is accrued and at what rate, including how the rate increases the longer you stay with the company;
  • Policies for using PTO;
  • Whether PTO earnings roll over from year-to-year;
  • When you will begin earning PTO or qualify to take vacation time. Some companies only allow employees to take PTO after 90 days, for instance, meaning that you could be forced to work on a holiday or take unpaid time off if you haven’t worked for 90 days yet.

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