Employee Benefits: A Key Part of Job Compensation

During this “Great Resignation” era when many workers are changing jobs or considering a job change, it is more important than ever to consider various types of employee benefits and their economic value.  

Also known as “fringe” (short for fringe benefits) or “perks.” employee benefits generally equal 25% to 50% of a worker’s gross pay. Thus, they are a key part of workers’ total compensation package.

Purposes of employee benefits include:

¨    recruit and retain talented employees (e.g., total benefits package)

¨    enhance workers’ financial security and health (e.g., health insurance)

¨    improve employee morale (e.g., paid vacation)

¨    increase productivity (e.g., profit sharing) and human capital (e.g., educational benefits and training)

¨    improve an employer’s reputation as a good place to work for and do business with (e.g., flexible work hours)

 

Below is a description of ten common employee benefits and benefit-like policies in the current labor market:

Paid Vacation- This is one of the most common employee benefits.  Workers receive their usual pay but are allowed a certain amount of time (e.g., one to four weeks) off from work.  Often, the number of paid vacation days is based on years of service and increases with seniority. Vacation pay is part of a worker’s income and is fully taxable on federal and state income tax returns.

Paid Sick Leave- With this benefit, workers are paid but allowed to stay home when they, or sometimes a family member, are sick.  Leave may be uniform for all employees (e.g., 10 days per year) or based on years of service. Some employers allow workers to accumulate sick leave. Others take a “use it or lose it” approach where sick leave cannot be carried forward to future years. Like vacation time. sick day pay is fully taxable.

Paid Personal Days- This is a third type of  fully taxable paid leave. Some employers provide a certain number of annual  personal days for family emergencies or time-consuming activities (e.g., moving, jury duty or other court-related business, doctor’s visits, attending a wedding or funeral, house closing, travel snafus, and a child’s or pet’s illness). Workers may also use personal days when they run out of vacation or sick leave and need extra time off.

Holidays- Many employers provide a fixed number of paid holidays. These days are generally for national celebrations (e.g., New Year’s Day, Memorial Day, July Fourth, Labor Day, Thanksgiving, and Christmas). Some employers also purposely shut down their operations for week or two (e.g., colleges and universities around the holidays and some factory production lines) and pay their workers during this time.

Family Leave- The Family and Medical Leave Act requires employers with 50 or more workers to provide up to 12 weeks of unpaid leave.  To qualify, employees must have worked at least one year. Family leave allows time off to care for a newborn, a new adopted or foster child, or a seriously ill family member. It also provides unpaid leave when employees, themselves, are too sick to work.

Unpaid Leave- Workers may be able to negotiate time off without pay for reasons unrelated to family and medical leave.  Unpaid leave requests are often handled on a case-by-case basis. An example might be an employee who wants to take an extended road trip with friends or another who needs an unknown amount of time off to care for a sick or dying relative.

Educational Benefits- Many employers encourage their workers to learn new skills and pay tuition for college courses or specialized training. Some, not only cover tuition, but even allow workers “release time” to attend classes during business hours. Workers typically have to submit documentation of a passing grade or attendance. Paid sabbaticals are also available through some employers where workers get time off for extended study, community service, or creative projects.

Telecommuting- In the wake of the pandemic, liberal telecommuting policies are now being viewed as a key employee benefit. Workers who save two hours of driving and a half a tank of gas per day will save hundreds of hours of unproductive time and hundreds of dollars. Increasingly, employers are shifting to hybrid models where employees work at home for two or three days and in an office for two or three days. Some even allow workers’ pets at the office!

Flexible Hours- According to a recent study, 95% of workers want flexible work hours; even more so than they want remote work locations. More employers are increasing workplace flexibility in an effort to recruit and retain workers.

Company-Specific Perks- Another type of employee benefit are those related to an employer’s product or service line. Think discounts at retail stores and car dealers, free travel for airline employees, free or reduced tuition for college and university employees, stock or stock options for corporate employees, and free or reduced-cost company swag.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

 

Financial Aspects of “Unretirement”

The year 2021 was noteworthy for the “Great Resignation” as about 47 million people quit jobs last year. The year 2022 is equally noteworthy for a “Great Unretirement” as millions of older workers who left jobs during the pandemic decided to come back into the labor force. One study found 1 in 5 retirees were likely to start working again soon.

Factors contributing to this trend include:

 1. a high demand for workers (sometimes coupled with increased pay, signing bonuses, and/or remote-work flexibility)

 2. vaccinations and booster shots reducing COVID infection fears

3. high inflation that increased living expenses 

4. a poorly performing stock market decreasing retirees’ savings account balances. 

Some “unretirees” may have also gotten bored with too much unstructured free time and simply want to stay productive. Others may no longer be caregivers for a spouse or aging parents, which is why they retired previously.

 

Benefits of unretirement (or remaining employed immediately following a primary career, as I have done) include:

 

¨    Additional Income- Money is available for living expenses, home maintenance, and/or “extras” such as travel

¨    Sense of Purpose- Work provides outlets for creativity, a way to help others, and a sense of meaning and purpose

¨    Socialization- Life after full-time work can be isolating and working helps keep older adults socially connected

¨    Longer Life Expectancy- Research has found that working past age 65 may lead to a longer life vs. retiring early

¨    Staying Current- Continued work keeps job skills (e.g., computers and technical expertise) and contacts up-to-date

 

Whatever a person’s reason for unretiring, re-entering the labor force after being away for a year or more requires some advance financial planning. Below are six factors to consider:

 

Social Security Earnings Limit- Before full retirement age or FRA (e.g., 67 for workers born in 1960 or later), Social Security deducts $1 from benefits for every $2 earned above the annual limit ($19,560 in 2022). While benefits are withheld during this time, they could be larger later as payment amounts are recalculated to account for a person’s longer work history. Above FRA, there is no earnings limit to obtain full Social Security benefits.

 

Tax on Social Security Benefits- Income from unretiring may push older taxpayers into the income range where tax is due on a portion of Social Security benefits. For individual taxpayers, if combined income (adjusted gross income or AGI + nontaxable interest + ½ of Social Security benefits) is between $25,000 and $34,000, up to 50% of benefits are taxable. For income more than $34,000, up to 85% of benefits may be taxable. For married couples filing jointly, the income ranges are between $32,000 and $44,000 (50%) and more than $44,000 (85%), respectively.

 

Tax Withholding Adjustments- Adding income from employment to what could be multiple streams of income in later life (e.g., pension, Social Security, annuities, required minimum distributions) may necessitate adjustments in tax withholding or quarterly estimated tax payments. The IRS Tax Withholding Estimator online tool can help make an accurate withholding projection and the IRS safe harbor rules can help taxpayers avoid underpayment penalties.

 

Higher Income Tax Payments- Again, adding employment income to several other income sources in later life can place taxpayers in a higher tax bracket. It could also trigger higher Medicare Part B and Part D premium surcharges known as IRMAA (income-related monthly adjustment amount) and/or the 3.8% net investment income tax (NIIT), which affects individuals with a modified AGI (MAGI) of $200,000+ and couples with a $250,000+ MAGI.

 

Medicare- Older adults age 65+ who are on Medicare, begin working again, and receive primary creditable employer-provided health insurance coverage (i.e., coverage that meets certain minimum requirements) can drop Medicare and re-enroll later when they stop working again. By doing this, they avoid having to make monthly premium payments for Medicare Parts B, C, and/or D while they are working. The coverage must be deemed creditable or late enrollment penalties will apply. A new job may also provide access to valuable employer term life and disability insurance.

 

Budget Adjustments- Additional income earned by unretiring should be factored into household spending and saving via an updated spending plan (budget). This money provides an opportunity to help keep pace with recent price increases (e.g., food, gas, utilities, housing, etc.) caused by high inflation and to beef up retirement savings in IRAs and employer retirement savings  accounts, if necessary.

 

Bottom Line: If you are considering “unretirement,” be sure to cover your financial bases, especially budgeting, taxes, and health insurance. Best wishes for a great encore career.

 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.