In this series on work-life balance, Simple’s People Team explores the myriad topics you might encounter when navigating your career—and what it all means for your work world, personal life, and financial confidence.
So, you’ve been offered a new position—hooray! Your job search has landed you with an offer in hand. But what exactly is that offer worth? If you’re just looking at salary dollars, you’re missing crucial information about the full value of a job opportunity. That’s where base salary vs. total compensation comes in.
What is total compensation?
Your total compensation package is your base salary (how much you’re getting paid—often referred to as either your hourly rate or annual salary) + the value of all the benefits (like health insurance, retirement plan, and paid time off) + any bonuses or variable pay (if that’s offered by the company).
When a company makes a job offer, they typically name a specific number for the salary—but they don’t always explain the full picture of an employee’s compensation. So after your fist-pump (I got an offer…) but before your handshake (…and I’ll take it!), get the full picture of the total compensation you can expect.
Elements of total compensation
You probably have a salary range in mind when looking at jobs, but what are your total compensation expectations? When you quantify the value of your benefits, you’ll get clear on how a new job will actually affect your finances.
Take a look at some common components that make up a total compensation package and the questions you should be asking about each.
What insurance is available—health? dental? vision? If some plans aren’t offered, will that mean more expenses for you, like paying for new contacts?
- Consider this: If the company doesn’t offer insurance—what would it do to your bank account if you got into a bad car wreck and had no health insura
How much comes out of your paycheck every month for health insurance (aka, what are your monthly premiums)?
- Consider this: Job A pays $40,000 a year and monthly premiums are $80. Job B pays $41,500 a year and monthly premiums are $180. When you do the math, you’d lose money by taking a “higher-paying” job!
How much does it cost to actually use your insurance? Consider things like the deductible (how much you have to spend before insurance will cover anything) and the out-of-pocket maximum (how much you have to spend before insurance totally covers everything).
- Consider this: It can be hard to compare medical plans and predict your healthcare needs. So ask yourself if you could afford to spend as much as your deductible every year—and how you’d manage if you had to spend as much as your out-of-pocket maximum.
Does the company offer things that reduce medical expenses, like a Health Savings Account (HSA) or Flexible Spending Account (FSA)? Bonus points if the company puts some money into those accounts—consider it as part of what you earn (although you can only use it for medical expenses).
- Consider this: When you put money into an HSA or FSA, you don’t have to pay taxes on it (and you’re likely paying around 25% in income tax). So when you earn $100, what goes in your bank account is about $75—but what goes in your HSA or FSA is the whole $100.
Bonuses and profit sharing
If your offer includes an annual bonus, find out the nitty-gritty: is it a set dollar amount or a percentage of your salary? What triggers payout of the bonus—achieving company goals, individual performance, or some other metric?
- Consider this: The promise of a big shiny bonus every year is alluring, but bonuses are often the first things cut if company profits go down. Do you still feel good about what you’re earning if the bonus goes away?
Does the company offer profit sharing? Find out exactly how they calculate the amount you would get and how it’s paid out.
- Consider this: Start-ups often can’t yet afford to pay attractive salaries, so they offer profit sharing to attract employees. If you go that route, your financial health becomes very closely tied to the company’s profits—so consider how likely it seems that the company will grow.
Paid time off:
How many total paid days can you take off every year? Add up all your vacation and sick days, plus the holidays the office is closed—and include parental leave options as well if that’s a consideration for you. Does that total seem reasonable for your lifestyle? Is it in line with what other companies offer?
- Consider this: If you had to be off work for a bit unexpectedly—a long bout of pneumonia, a family emergency—do you think you’d have enough PTO? If not, could you afford to lose a week’s pay?
Disability and life insurance
What are the options for short- and long-term disability and life insurance? Some companies pay for a modest policy on your behalf, and many offer additional insurance you can pay for yourself. Find out the costs and how much money you’d be paid in the event of a major injury or death.
- Consider this: If you got hurt and couldn’t work for a few months, could you pay your bills? If not, a short-term disability plan would pay you some of your salary.
How can you tell if a total compensation package is good?
Ultimately, understanding your total compensation helps you make informed decisions about what works for your life. Look at the amount of money you need to take home every month, as well as how much you can afford to spend on medical bills or emergencies—and compare that to what’s offered.
Companies that are great to work for will offer employees benefits that add value to their financial lives—and be transparent about it. Here at Simple, for instance, we want our employees to feel confident about their compensation, so we include a total compensation statement with every job offer. We clearly define and break down the cost of each benefit so that our candidates can easily compare our offer to their current employment or other offers they’re considering. We believe that being totally open about base salary and benefits from the get-go is the best way to build a great team.
Get clear on your compensation
So back to that hypothetical job offer we started with. If your offer didn’t include a clear breakdown of total compensation, ask for it! If you don’t have your dream job offer yet, start thinking now about what matters to you in a total compensation package. And even if you’re staying put in your current job—ask yourself if you really understand the total compensation you’re getting. The more you know, the more empowered you’ll be to manage your finances and negotiate for what you need at your next performance evaluation.
Making sure your total compensation supports your financial and lifestyle needs is one way you can maintain work-life balance. Get more tips on how to achieve work-life balance in our handy guide.
Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.