It’s Time to Take Action to Boost Your Pay
Think of all those benefits you receive as an employee. They’re great, aren’t they? But did you know that they could be making you worse off? There are two reasons for this: tax, and employers replacing wages with benefits. These two factors can erode your net pay.
Real Value Employee Benefits
There is no doubt some employee benefits are valuable to employees. For example, health plans paid by your employer are not considered as wages and therefore not subject to Social Security, Medicare, Federal Unemployment Tax Act (FUTA) taxes, or federal income tax withholding. Similarly, FUTA tax is not withheld from your wages to cover unemployment compensation under FUTA. So, these benefits can be very valuable to you as an employee.
The Real Cost of Fringe Employee Benefits
Employers have been stampeding to offer increasing benefits to win the signatures of talented job candidates. The result has been compensation packages stuffed with fringe benefits.
The value of these fringe benefits quickly becomes tarnished when you realize that they are taxable. The net pay that you thought you would receive is eroded by tax on benefits that you really don’t need and may not even use.
If you have benefits, such as any of the following, you will find your wages hit by income tax withholding:
- Discounts on services
- Discounts on property
- Social club memberships
- Event tickets
While there are different tax rules for different types of benefits (for example, personal use of a company car is taxable while business use isn’t, the general rule is the same. You keep less of your gross salary, because you’ll be taxed more.
If your employer runs incentive schemes and offers prizes such as gift cards or even a family vacation to Disney, you will be taxed for the gift card or trip alike. Just as you are taxed on bonuses, you will be taxed on prizes.
Extra Employee Benefits Are Balanced by Lower Salaries
To offer sparkling benefits packages, something must give. Generally, this will be your base salary. If you’re finding it hard to boost your wages but much easier to raise your compensation package, benefits are to blame.
The cost of receiving a package of fantastic employee benefits, like health plans, puts pressure on salaries. According to the Bureau of Labor Statistics, your wages make up around 70% of your total compensation package. The cost of providing benefits to employees has increased from around $7.23 per hour to $11.55 an hour between 2004 and 2018.
Research by Pew, published in 2018, shows that the purchasing power of average wages in the United States has hardly moved since 1978.
Benefits or Higher Salary? The Choice Is Yours.
Employers have improved the benefits they give to employees in response to the desires of employees. However, this has led to lower relative salaries and stagnating wages.
Many employers offer a package of benefits to their employees, irrespective of whether you want those benefits, because the cost to them is lower – because they ‘buy in bulk’. Consequently, you could find yourself penalized by lower salaries and tax on benefits that you neither need nor want.
At least in part to combat the wage stagnation, an increasing number of Americans are considering working as contractors or choosing to work for employers who offer bespoke benefits packages. By following this strategy, you benefit from higher wages and greater freedom of choice on what benefits you purchase independently or through your employer.
To review your options and learn what you could be earning in a new position, contact Loyal Source today.