Before accepting your next job, there are critical decisions every employee must make. From negotiating a salary to choosing workplace benefits, Money Girl covers 10 things every employee should know.
Congrats on your new job offer!
But before you settle into your new role, there are some critical decisions you must make. From negotiating your salary to understanding what happens to benefits when you leave your job, this episode will cover 10 critical things every employee should know.
Tip #1: How to negotiate wisely
Two things you must carefully negotiate when considering a job offer are salary and, if available, stock options. Be sure to spend some time researching what you should ask for and preparing your talking points for the best outcome.
Note that smaller companies may be more flexible with offering benefits, but negotiating them may not be as easy if you're applying to work for a larger firm. Working with a professional recruiter or negotiator may be worthwhile if you're up for a high-level job, especially if negotiating is not your strong suit.
Working with a professional recruiter or negotiator may be worthwhile if you're up for a high-level job, especially if negotiating is not your strong suit.
The time to negotiate your salary is before you accept an employment offer. Avoid agreeing to a conditional salary offer, such as getting a six-month review and a potential salary bump down the road. Unfortunately, those offers may not pan out due to changes in the economy, management, or company financials.
But don't negotiate your salary too early, such as while you're still interviewing for a role. If you receive a verbal salary offer, request it in writing so you can carefully review it. Then, use these tips for a successful negotiation:
- Research average salaries for people in your field who have the same level of education, experience, and skills, and figure a range you'd consider accepting.
- Allow a potential employer to make the first offer just in case it exceeds the salary range you had in mind.
- If a firm presses you for your desired salary, always propose a range that exceeds average salaries for similar people in your field, so you have room to negotiate if needed.
- Make a list of specific reasons why you deserve the salary you want, such as impressive results you've achieved in past positions, your years of experience, and any in-demand certifications or skills you possess.
- Get your final salary and benefits agreement in writing so it can't be disputed later.
If your potential employer offers salary plus stock options, be sure you understand their value. Some companies, such as startups, provide stock options to sweeten the deal when they don't offer competitive salaries.
Agreeing to a lower salary in return for stock options can be risky if they don't pan out. However, if you believe the company has a profitable future, owning stock options might be worthwhile in the long run.
Agreeing to a lower salary instead of stock options can be risky if they don't pan out. However, if you believe the company has a profitable future, owning stock options might be worthwhile in the long run.
Be sure you understand the number of shares you'll receive and their vesting schedule, which is how long you must be employed to own them fully. Consider getting help from a professional, such as a financial advisor attorney, to review the offer.
If a potential employer is a privately held company, beware of stock dilution. For example, if they offer you a percentage of stock, such as 1%, your financial interest decreases as the firm provides options for new employees or investors. Consider requesting that your stock options won't be subject to dilution, so your interest in the company never decreases.
Tip #2: Employment forms
Every new employee must fill out the paperwork required by their employer and the IRS. You should be familiar with two forms: Form W-4, Employee's Withholding Certificate, and Form I-9, Employment Eligibility Verification.
The purpose of the W-4 is to indicate how much federal income tax your employer should deduct from your paycheck. You do this by claiming allowances, including one for yourself, one for your spouse, and one for each dependent. The more allowances you have, the less tax gets withheld from your pay.
However, if you claim too many allowances, you risk having too little withholding throughout the year and owing taxes. If you claim too few, you underpay taxes but receive a refund when you file taxes. If you're unsure about completing the W-4, use the IRS Tax Withholding Estimator or speak with a tax accountant for advice.
New employees must complete an I-9 to prove their identity and eligibility to work in the U.S. Acceptable documentation includes one document that establishes both your identity and work authorization, such as a U.S. passport or permanent resident card.
If you don't have a single document that proves both your identity and work authorization, you can provide two documents, such as a state or federal ID card or driver's license, Social Security card, or original or certified birth certificate.
Tip #3: Enrolling in benefits
You can usually sign up for benefits as soon as you start working for a new company. However, there may be a waiting period before they begin, such as 30 to 90 days.
After your initial benefit enrollment, you can only make changes to your selections during open enrollment season. That's a period each year when workers can renew or change their benefit options, such as health, dental, and life insurance.
Most companies schedule open enrollment in the month or two before enrollment forms are due. For instance, if the employer's benefit plan starts on January 1, open enrollment may be set for November.
Tip #4: Investing for retirement
Whether you're offered a retirement plan at work is up to your employer. Many medium- to large-size companies and government agencies provide 401(k), 403(b), or 457 plans.
You contribute a portion of your salary and select from a menu of investments, such as mutual funds and exchange-traded funds (ETFs). These tax-advantaged accounts shelter your income from taxes upfront or when you make withdrawals in retirement. Some employers offer matching funds, such as paying 50% of your contributions, up to 6% of your salary.
These tax-advantaged accounts shelter your income from taxes upfront or when you make withdrawals in retirement.
While 401(k)s are offered by for-profit firms, 403(b)s are offered by tax-exempt organizations, such as public schools, churches, hospitals, and nonprofits. Like with a 401(k), employers may offer matching contributions. State and local governments and some nonprofit organizations offer 457 plans, which are similar to other types of retirement plans but don't allow matching funds.
Tip #5: Choosing a health plan
Your new employer may offer several health plans, such as HMOs, PPOs, and HDHPs. The best plan for you is one that's affordable and meets your healthcare needs. Here's a summary of each plan type:
- HMO or health maintenance organization plan offers a network of doctors, service providers, and hospitals you can choose from. You must select a primary care physician who refers you to any specialists, such as an allergist or cardiologist. Your benefits begin after you meet an annual deductible. You're responsible for coinsurance, a percentage of healthcare costs, and copays for doctor's visits and prescriptions. An HMO typically costs less than other plans because it offers fewer options. But it's a good choice if you're in relatively good health and you want to keep healthcare costs low.
- PPO or preferred provider organization plan is like an HMO because you choose healthcare providers from a network. However, you don't have to choose a primary care physician or get referrals to see specialists. You're also allowed to seek out-of-network care. Because a PPO comes with more choices, it's typically more expensive than other plans. If you get care outside of the network, you'll often receive less coverage with higher out-of-pocket expenses. Just like an HMO, meeting an annual deductible, coinsurance, and copays are all part of having a PPO. A PPO is a good option if you can afford higher premiums and healthcare expenses, prefer to see out-of-network doctors, and don't want to hassle with getting referrals to see specialists.
- HDHP or high-deductible health plans can be an HMO or a PPO. The difference is that it has lower monthly premiums but a much higher deductible. Additionally, you're eligible for a health savings account or HSA if you opt for this type of plan (more about that in a moment). If you're in relatively good health, want lower premiums, and believe an HSA would cover your healthcare expenses, an HDHP can be a good option.
Tip #6: Using a medical savings account
A health savings account (HSA) and flexible spending account (FSA) are two types of medical savings accounts your employer may offer. Both allow you to pay for healthcare expenses on a pre-tax basis, which saves money.
To be eligible for an HSA, you must be enrolled in an HDHP (on your own or through an employer) and have no other medical insurance. You elect to make pre-tax contributions up to an annual limit that you can spend on qualified medical, vision, dental, and hearing expenses.
To be eligible for an HSA, you must be enrolled in an HDHP (on your own or through an employer) and have no other medical insurance.
Contributions to an HSA can be made by you, your employer, or someone else. Some employee benefit plans provide regular deposits into an HSA, such as a certain amount every quarter or a matching contribution, which don't get included in your taxable income.
Unused HSA balances roll over each year without penalty. You can earn interest and choose investments to grow your funds on a tax-free basis (except in some states).
Unlike an HSA, an FSA can only be offered by employers. The significant difference is that you must spend all or most of the funds each year. Additionally, it typically allows you to pay for childcare expenses on a tax-free basis.
Tip #7: Life insurance
Many employers offer life insurance in their benefits package. However, it's important to note that life insurance through your employer ends when you voluntarily or involuntarily leave your job. If you have loved ones who would be hurt financially by your death, you need to evaluate your life insurance needs carefully.
In many cases, you need more life coverage than what's offered at work. For instance, if you make $100,000, you may need a $1 million policy. A good rule of thumb is to have 10 times your annual income. Consider shopping and comparing term life insurance quotes at sites such as TopQuoteLifeInsurance.com
When determining how much life insurance you need, factor in your total savings, debts, and future goals, such as paying for a child's education or leaving money for heirs. Speak with a licensed insurance professional if you need help choosing coverage.
Tip #8: Disability insurance
Your new employer may also offer short- and long-term disability insurance. Here's a summary of each:
- Short-term disability replaces a percentage of your income for a period, such as three to six months, if you have a temporary disability that makes it impossible for you to work. Covered disabilities may include illnesses, maternity leave, and injuries from accidents.
- Long-term disability replaces a percentage of your income when you're unable to work or can only work part-time due to a disability. Covered disabilities may include neurological disorders, lung diseases, or vision loss. Compared to the short-term, it has a more extended waiting period for benefits to begin (such as 90 days), and coverage may last from several years to retirement age, depending on the policy.
Because long-term disability can take weeks or months before benefits begin, consider purchasing a short-term policy to help cover costs before then.
Tip #9: Family and Medical Leave Act (FMLA)
The Family and Medical Leave Act (FMLA) is a federal law that gives eligible employees unpaid leave for up to 12 weeks during a 12-month period when you need to:
- Care for a new baby or adopted child.
- Care for a foster child.
- Care for an immediate family member with a serious health condition.
- Take time from work after a family member gets called to active military duty.
- Recover after medical treatment for a serious condition.
FMLA also provides up to 26 weeks of unpaid leave to care for a covered servicemember in your family who has a serious illness or injury. Note that some employers may offer financial benefits in addition to what's mandated by FMLA, but they aren't required to.
Tip #10: What happens to benefits when your job ends
When the time comes to leave your job, you lose some benefits at the end of the month, such as life and disability insurance. However, you may elect to continue with others.
If you had a group health plan, you're eligible for COBRA (Consolidated Omnibus Budget Reconciliation Act) continuation coverage. It allows you to keep your health, dental and vision benefits for you and your family for a period, usually up to 18 months. However, you must pay the entire cost of coverage plus an administrative charge.
If COBRA is unaffordable, you can shop for an ACA-qualified plan through Healthcare.gov, an insurance broker, or online sites. You may qualify for an ACA subsidy, depending on your income and family size, which can make health insurance more affordable than COBRA coverage.
You may qualify for an ACA subsidy, depending on your income and family size, which can make health insurance more affordable than COBRA coverage.
If your job provided a retirement plan, you might have unvested matching funds that you'll forfeit. You can do a tax-free rollover of your vested balance to an IRA (Individual Retirement Account) or a retirement plan with a new employer.
If you have an HSA, it's a portable account that you can continue using for qualified medical expenses after you leave your job. However, you won't be able to make additional contributions unless you're enrolled in an HSA-eligible health plan on your own or with a new employer.
Unlike HSAs, you can't take FSA funds with you when you separate from an employer. So, if possible, spend the balance before the end of the month when your employment ends.
What questions do you have about workplace benefits or your career? Leave Laura a voicemail question, comment, or idea for a future topic by calling 302-364-0308. Be sure to follow her on Instagram and learn more about her books, online courses, and free newsletter at LauraDAdams.com.