Calculating the true net compensation for a position

How to calculate the true net compensation for a position.

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Last Updated on 2 weeks by Christopher G Mendla

The true compensation for a position is not always apparent.  When you are in the job market, you should be able to quantify the compensation. In addition to the compensation there are some intangible factors that should also be factored in. 

Calculating the true net compensation for a position
Calculating the true net compensation for a position

As my job search progressed I realized that comparing jobs and compensation was a bit more complicated than I thought. I had to compare full time W2, contract and contract-to-hire positions. Some were salary and some were hourly. Some considerations in any analysis are:

Intangibles

  • What is the culture? Is the mission of the organization in line with your beliefs. Would you fit in?  A hypothetical example would be working looking at a job with GM when you are a known Ford fan. 
  • What level of freedom/flexibility will you have? Review sites such as Glassdoor.com help shed some light on the culture. Consider that the reviews are only an indicator, not a guaranteed representation of the position. A few vindictive employees could skew the results to the negative. On the other hand, I have heard rumors of employers “Strongly encouraging” employees to leave positive reviews. 
  • How would the position affect your resume and career path? i.e. If your career plans include getting into management, does this position facilitate that? 
  • What is the environment? (I worked in a position where our office was in the production area. They used nasty chemicals such as Toluene and Benzine. )
  • Do they allow Remote work?  Since the Covid-19 outbreak, remote work is a norm. Be sure you know if the remote option is a permanent option or if it is for the duration of Covid. 

Salary

Base salary

  • Determine your expected base salary on a yearly basis.

Bonus

  • What is the expected bonus? For some companies, this could be between $0 and $15,000. Take your best guess. Also consider any equity or stock options. These can be difficult to quantify. 

Gross Pay/income

  • Add the base salary and expected bonuses. 

Wage tax

  • The difference in wage taxes between different municipalities or stages can be huge. For example, Philadelphia Pennsylvania hits workers with an absurd wage tax of around 3.5 percent. You will need to investigate how your state and local governments will handle taxes paid to the locality where you work. In some cases, they will credit all or part of those taxes to your tax bill in your home locality. 

Unemployment

  • I am a Pennsylvania resident. If I work in PA, I am eligible for unemployment benefits after a short stint. However, if I work in New Jersey, I would not be eligible for benefits unless I was eligible for benefits from a previous Pennsylvania job.
  • Working in a corp to corp contracting arrangement may mean that you are not building unemployment benefits.

Health Plan Costs

  •  Calculate the expected health care costs. This is not entirely quantifiable – If you pick a plan where reimbursement is capped or one that has high out of pocket expenses and you need care, that can skew the whole equation.
  • Be sure to factor in dental and eye care. 
  • Some companies offer Health Savings Accounts or Thrift Savings Plans

Pay Schedule

  • This is somewhat less tangible.  How often do you get paid?  Weekly paychecks do make managing your finances a little easier especially when starting out. 

Retirement/410k

  • Most employers will match your contributions up to a point, typically about 4 percent of you income. 

Commuting costs

  • Figure your commuting expenses. including the Tolls, mileage, trail passes etc. 

Tolls

  • Take the daily cost of tolls times the number of days you expect to commute to work. (Account for vacation, sick, personal days)

Mileage expense

  • Many people underestimate the mileage cost. The Federal Mileage rate is a good indicator of your commuting mileage costs. Take the daily miles times the Federal mileage rate (.53 in 2017) and multiply that by the number of days you will commute to work. This will provide an estimate as to what commuting is costing you in terms of gas and wear and tear on your vehicle. 

Parking

  • If you work in the suburbs, this might be zero. If you drive to a major city such as New York, this could be well over $400 per month. 

Trail passes

  • If you use public transportation, the cost of a trail pass can be significant. Some employers will provide some reimbursement. You might also have parking fees at the train stations. 

How many hours per year will you be working?

  • A human being needs a balance of work and leisure to be productive and happy. Will you be happy with a lot of money but no time to relax and enjoy it? 
  • Try to quantify how much time you will need to put into a position. 

Hours Expected

  • How many hours does your employer require?  Unfortunately, many developers are considered ‘exempt’ employees. You could end up working 60 hours or more a week.
  • A $100,000 salary for a 38 hour week beats a $110,000 salary for 60 hours/week
  • Some employers will red flag candidates who question the number of hours required. The reality is that a 50 hours week is 25 percent more hours than a 40 hour week. A candidate deserves to get an honest answer about expected hours. 
  •  How many hours will you work per year? – subtract out vacation, sick, personal and holidays

Travel time

  • How many hours do you expect to travel each day times the days you expect to commute? This can add up quickly. A remote position at 40 hours/week vs a position at 40 hours/week where you have 2 hours of commuting can give you a couple hundred extra hours per week

Paid time off

  • What does the employer offer in terms of sick, personal and vacation days? How many paid holidays  do you get? 
  • Vacation  – This is insane. Some companies ‘offer’ no vacation for the first year and then 5 days for personal and vacation in the second year. Also, some companies will start accruing when you start work. Others don’t give you the time until the end of the 1st year. Quite often this can be negotiated. You don’t want to seem as though you don’t want to work but you might be able to get an extra week. 
  • Unlimited PTO. The cheese is NEVER free. Unlimited PTO sounds great. However, it almost always comes with “Gotchas” such as being required to meet a specified amount of billable hours per period. 
  • PTO limitations – Some organizations will limit when you can take PTO. For example, you might not be able to take time off during their peak season or when a product is being brought to market. 

Work from home

  • Working from home frees up a lot of time.  Consider a choice between a position where you have to drive 2 hours a day or a position where you can work from home. Working from home will free up about 10 hours per week. That time can be put to good use. Since the Covid-19 outbreak, remote positions are much more common. 

Other Factors

Physical environment

  • What is the environment of the office? Are employees shoehorned in?
  • Is it clean?
  • If it is in an industrial environment, are there toxic chemicals or dangerous conditions?
  • Are there places nearby for lunch? 

People

  • What is your impressions of the people? Pay attention to everyone you meet when you visit the company.  Do people look stressed or anxious? 

Safety

  •  Is the work location in a safe neighborhood? 
  • Are the parking lots well lit and protected? 
  • Check a few online crime reporting sites such as CrimeReports.com

Freedom Factor

  • This is difficult to quantify. Will you have freedom and the ability to take initiative or will you be micromanaged. 
  • Try to get a feel from the interviewers
  • Glassdoor.com is an invaluable resource. Keep in mind that will always be disgruntled people who complain but if an overwhelming number of people are raising issues, that can be a red flag. 

Temporary positions with relocation

Summary

If you are in the fortunate position of being able to choose among multiple job offers, then you need to have a plan to realistically compare positions and companies. 

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