You have a job offer and now you have to make some choices. You really want this job, so do you accept the offer or do you ask for more? Or you have an offer and you’re lukewarm on the organization, but you haven’t yet gotten an offer from your preferred employer.
When looking at a job offer, look at the overall package and not just the money piece. Salary is definitely one of the most important pieces. You need to make a living wage in order to sustain yourself. But when it comes to asking for money above and beyond what you consider adequate, make sure you take the other components into account as well.
As part of a benefits package, an employer may offer many different components. By understanding how benefits packages work and what affects them, you can better consider job offers and negotiate better compensation.
Throughout this article, we explain what a salary package is and explain how to negotiate your salary offer.
What is a salary package?
Salary packages include more than just your base salary. Additionally, it may include commissions, annual leaves, housing subsidies, or bonuses. Employers often refer to your base salary when they mention a salary.
Before accepting a job offer, make sure you know everything about the compensation package. By doing this, you can make informed decisions and increase your earning potential. Components of a compensation package may include:
Salary is one of the main factors in evaluating an offer. You need to get paid well enough to cover your housing, meals, and monthly expenses. If money is your main motivator, then your goal is to take the offer that pays you the most. If you’re starting as a full-time employee, your monthly or annual salary is the number to focus on.
Full-time employment is also referred to as exempt employment. If you’re exempt, you get a fixed salary and are exempt from minimum wage and any overtime pay.
On the other hand, you could be hired on as an hourly employee, or nonexempt.
U.S. federal law — specifically, the Fair Labor Standards Act — requires that employers pay hourly nonexempt employees a minimum hourly wage. The act also requires employers to pay one and a half times your hourly wage for any hours worked above 40 hours per week.
Although this situation is less common, you can be hired as a contractor, where you get paid a monthly amount for a certain number of hours worked per month. Similar to hourly work, check to see what your hourly rate would be by taking the fixed amount you’ll get paid by the number of hours you’ll work. This number should meet or exceed the minimum federal hourly wage and be comparable to other offers you receive.
Cash bonuses can be tied to your job performance, the company’s performance, or both. For example, if the company meets or beats revenue and profitability goals, then employees at a certain level may receive a bonus.
In another example, if you work on the product or marketing side of the organization, you may get bonuses based on a successful product launch or its adoption or sales growth. Bonuses mean more cash in your pocket, but they can also move you to a higher income bracket, causing your tax rate to go up. In general, though, bonuses are a great thing.
Bonuses are structured in different ways. If bonuses are part of your offer, ask the employer how often bonuses are paid out and when have there been instances of bonuses not getting paid.
Commissions are more common and usually the norm with sales-related jobs. Ask about commission structure details and also find out what percentage of employees earn commission, and how much on average. This will give you an idea of whether the commissions are attainable.
Stock options are common in startups and rarely do they result in a significant payout. You hear about early employees at companies like Google and Facebook becoming wealthy because they had stock options early on. Be wary, though. Stock options are not a substitute for wealth, and although they can result in significant wealth in some cases, they usually end up being worth little.
Restricted stock options (RSUs) are sometimes given at publicly traded companies. RSU structures vary across organizations, but in the most common cases, you get a certain number of shares for joining the company and then you vest a percentage over four to five years.
For example, you join a company and you get 1,000 RSUs that vest over four years. The stock is worth $20 a share. So your RSUs in this case are worth $20,000. Because of the four-year vesting, you get 250 RSUs the first year, another 250 the second year, and so on until you vest all 1,000 RSUs. RSUs are almost like cash, but they carry some risk:
You get them only if you remain with the company during the entire vesting period.
If the stock price drops to zero, the RSUs are worthless. However, the risk of this happening is low. The stock price could fluctuate, though, to, say, $10 a share. But it can also go up, to $30 a share in this hypothetical example. So, your RSUs could end up being worth a lot more, too.
The 13th-month pay, or double pay, is an extra amount of compensation that is typically included in compensation packages. Unlike a year-end bonus, it is based on your monthly salary. In some companies, employees are also paid on the 14th month.
Sick leave allowance
As of 2021, the Employment Law stipulates that sick leave accumulates at a rate of two paid sick days per month of employment during the first 12 months, and four paid sick days thereafter. In order to use your sick leave allowance, you must meet certain conditions.
There are several requirements for taking sick leave, including having enough accumulated sick leave allowance, submitting an appropriate medical certificate, and taking no more than four consecutive days of sick leave.
A sick leave allowance equals four-fifths of an employee’s average daily wage in the 12-month period before the first day of sick leave.
Under the current Employment Law, employees with continuous contracts for more than 12 months will enjoy at least seven days of paid annual leave, separate from public holidays. The amount of annual leave you accumulate is generally determined by the length of your service with an employer on a monthly basis. Unused annual leave can be carried over to the following year in some organizations.
Other optional items in your package
Some employers offer valuable perks that either help you create wealth or, depending on your circumstances, save you a lot of money:
Relocation assistance: In the rare case that you get offered a relocation, allowance, your employer may cover your moving and travel expenses. It may also give you an allowance to pay for housing while you find permanent housing.
If your profession is in high demand, an employer may even give you money toward a down payment on a house. Some universities offer this perk to newly minted professors.
401(k) and matching: Many employers, especially the larger ones, offer this benefit. A 401(k) allows you to save money from your paycheck before taxes get taken out. This is one of the few instances where you don’t have to pay taxes on the money you make, as long as you save it in a 401(k) or comparable plan.
The only catch is that the money needs to stay in the account until you retire. It gets better, some employers will match your savings contribution up to a certain amount. Ask about their 401(k) plan and their matching program.
Healthcare: This benefit can be significant depending on your age, the number of dependents you have, and the type of coverage offered by your employer. For example, if you’re still covered under your parents’ insurance plan, coverage from your employer may not be that important.
On the other hand, if you have significant healthcare expenses on a consistent basis — say, $200 a month or more on medical bills and medicine for yourself — the employer’s plan may cover all these costs.
Some employers cover all the employee’s medical costs while others pay a piece and then ask participating employees to pay a portion of the monthly coverage.
Ask the employer about specific healthcare benefits offered and how much you would need to pay to participate. Some employers also require you to wait 30 or more days after your start date before your health benefits kick in. Get clarification on this, too.
Dental: Employers often offer dental coverage as part of their healthcare coverage. Again, this can be a valuable benefit depending on your circumstances. If you have braces, intend to get them, or plan on having other orthodontic work done, this benefit can save you money. A sample plan may cover up to $1,250 in orthodontic services per year and then offer discounts of up to 50 percent or more on related services.
Vision: Vision insurance tends to come with healthcare plans. If you wear glasses or contacts, this coverage can potentially mean a few hundred dollars a year in savings on glasses or contact lenses. Vision insurance is typically a lesser cash value bonus compared to dental insurance. But it’s still a benefit worth considering.
FSAs and HSAs: Flexible spending accounts (FSAs) and health savings accounts (HSAs) allow you to save pretax money from your paycheck to cover health-related expenses. The benefit of opting in for one of these accounts is that it allows you to save from your pretax earnings. This lowers your taxable income and, depending on your tax bracket, can translate into substantial savings on certain expenses.
For example, if your tax rate is 30 percent and you contribute $2,000 into an FSA, you avoid paying taxes on the money you put into the FSA, so you save $600, which is calculated as follows:
$2,000 in annual FSA contribution × 30 percent tax rate = $600 in savings
Per IRS rules, you can contribute up to $3,450 for 2018 into a personal HSA or $6,900 into a family HSA. For FSAs, the annual limit is $2,650.
Gym and wellness allowance: Yes, some employers offer this, and for those who do, amounts of $100 per month are not uncommon. You can get an additional $1,200 per year through this perk. Some employers offer onsite gyms. Although that’s not the same as an allowance, an onsite gym allows you to save the cost of a membership, so it translates into a real savings.
Commuter benefits: Employers also tend to offer commuter spending accounts (CSAs) that you can use to pay for parking and public transportation to and from work. This benefit is similar to FSAs and HSAs in that you can contribute pretax dollars and lower your tax burden. The IRS sets limits on how much you can contribute based on your income.
Company car: This is a rare perk, but some organization may give you use of a company car if your job requires it or if you go to work in a place that requires you to have security and a driver. If your employer provides this benefit, it will save you a lot in not having to invest in transportation. Also, clarify whether you can use this benefit for personal use and not just for work.
How to negotiate your salary and benefits with your employer?
The compensation package an employer offers you may not be in line with what you expected, but you’re still interested in the position. If you want a better compensation package, you can negotiate with your employer. In order to get your desired compensation, you can prepare before you negotiate. Negotiation skills are also crucial for you. Here is a guide to negotiating your salary:
1. Know your value
When negotiating a salary, knowing your value is crucial since it determines how much a company can gain from you. Consider these perspectives as a starting point:
- educational qualifications
- certification and licenses
- skills and abilities
- career level
You can use your qualifications to convince employers why you deserve more compensation when you understand yourself better.
2. Consider an offer carefully before responding
It’s natural to get excited when you get a job offer. It’s a big deal! You may be eager to sign the offer and send it back right away. Don’t do it, though. Hold onto it and give it some thought before you respond.
You should compare the offer with the results of your research before you respond to the hiring manager. Make sure your first compensation package includes all of the benefits you want, since your first compensation package can have a significant impact on your future benefits.
When you get a job offer, thank the employer. Ask when the company would like a response from you if it’s not specified in your offer. If it wants a response immediately, ask if you can have at least a day to respond.
You want to stay calm and let the employer know that you’re appreciative and interested. But you also don’t want to appear too eager. Unless this is the absolute best job in the world, waiting lets you do the following:
- Allow other offers to come in. If you’re interviewing at other organizations — and you should — then this gives you time to evaluate other opportunities.
- Ponder what’s important. Evaluate your offer and determine if it’s good for you. Think of the benefits being offered and if they’re important to you. Also consider other benefits you’d like to have that are not included.
- Prepare questions. Prepare questions to ask about your offer letter. You owe it to yourself to be familiar with everything that is being offered to you, including details on any bonus or stock, medical benefits, and other perks. Definitely get all these questions out of the way before you sign. The employer expects you to ask these questions, so don’t feel awkward about it.
As soon as you get an offer from someone, reach out to other employers with whom you’ve interviewed and let them know. This usually makes them hurry to give you an offer if they intend to do so.
3. Researching salary information
Before you start negotiating, make sure you have a good idea of the market rate for someone in your role. Because it’s your first job, keep in mind that it’s an entry-level role.
One easy way to find out what you should get paid is to talk to people who have the same job. Do you know someone with the same role at another organization or someone at the organization? Do you have a close enough relationship to ask such individuals how much they make and for them to share this information? If you do, then definitely ask.
PayScale is another great resource for salary data. You can look up average pay for your role and similar ones, at your experience levell, and narrow it down to your location. Just go to www.payscale.com, click Get Free Salary Report, and choose Job Offer. Then answer a series of questions, and you get a high-level compensation report. If your offer consists of an hourly rate, PayScale will convert it to an annual salary.
4. Negotiating other perks besides money
Even when you make the case for getting a higher salary, the employer may not have the flexibility to bump it. Some employers have rigid pay guidelines where each position belongs to a certain pay grade. As you get promoted or change roles, you can move to a higher pay grade. In other cases the employer just may not have the budget to increase your offer. Instead of cash, you can ask for other perks:
Vacation: Vacation time is often referred to as paid time off (PTO). Your offer letter should include mention of vacation and holidays. If the organization offers two weeks standard of PTO, you can ask for an extra week or more of PTO instead.
This can be a valuable perk if you plan on traveling or taking a medical leave. Your employer may offer additional time off for medical reasons. If you plan on taking such a leave, discuss it with the employer.
Later start date: Unless you’re joining a company with a preset start date for a specific training program, you may be able to ask for a deferred start date. If you’re just graduating from college, you deserve at least a few weeks off. Take some rest and extend your start date if you can.
Working from home: Also referred to as telecommuting. Some jobs are able to be done from home. Because this is your first job, you should maximize your time at work so you can learn as much as you can and get to know your colleagues.
Nothing beats face-to-face collaboration. Still, it may be nice to work from home one day a week or once every other week. If this is something that appeals to you, you can ask for this type of flexibility.
5. Gaining leverage with multiple offers
Whether you are set on working for one organization or could care less, you should interview with three or more employers so you can get at least two offers. Having more than one offer in hand gives you leverage. It also lowers your risk of getting no offers at all.
When you have two or more offers, it starts getting fun. You’re in a great position to ask for a better package. Take a scenario where you want to work for Employer A, and it offers you $15 an hour.
Then Employer B comes along and offers you $16 an hour. If you want to work for Employer B, and you believe you have a good offer in hand, you should take the offer from Employer B. If, on the other hand, you prefer Employer A, you can say something along these lines to Employer A:
- I’m excited about the prospect of working at Employer A. I’ve received another offer, though, and it proposes to pay me more. Employer A is where I’d like to work, but this other offer creates some hesitation. Is there a possibility to increase my compensation?
Here you can do two things:
- You can tell Employer A what the other employer is offering and see if Employer A beats, matches, or comes close to the competing offer.
- You can leave it vague and not specify what the other employer is offering.
The employer will either ask you what you’re getting offered (it’s okay to say) or will come back to you with a number, which may be more or less than the competing offer. There’s no right strategy here. Do what feels right.
Be appreciative and humble when talking to the employer. You want to convey that you have another offer and that you’re looking to make the best decision. But you also want to let the employer know that you value its offer, and that you’re interested in working for it. You don’t want to come off as playing both sides to get the best deal.