Total Compensation

Total Compensation: 5 Steps to Calculate Your True Earnings

When considering how much you earn most people report their gross annual salary. However, yearly earnings likely represent a small part of your total compensation. In order to maximize value in your career I think it is important to truly understand the value of your current job. When comparing career opportunities, to make an intelligent decision you should first calculate your total compensation package with attention to benefits, taxes, reimbursements and other tangible factors as well as the subjective stuff that adds to overall career satisfaction.

These are the factors you should use to calculate your compensation package. They may make you think twice before accepting a new job, even one that pays better.

1. Calculating Total Compensation: Time Spent Working

The first step to take when calculating your total employment package is to determine how much time you actually spend working. This sounds like a no-brainer but the equation is more complex than it initially seems. Most employees get paid time off (PTO), sick days, rotating and flex holidays so a true calculation of your total compensation package should include a tally of the days you actually expect to work.

For me, this means subtracting PTO, paid vacations and other days I expect to take off while compensated. Let’s use an example of someone making $60,000 gross income per year.

TIME OFF ITEMHOURSDAYSWORK WEEKS
TOTALS176224.4
Paid Time Off
4051
Vacation80102
Other Days Off5671.4

Adjusted Pay:
52 – Total weeks per year
(4.4) – Total weeks per year not worked

$60,000 / [47.6 (weeks worked) * 40 (work hours per week)->
$60,000 / 1,904 =
$31.51 Per Hour – Adjusted for actual time working per year

2. Calculating Total Compensation: Retirement Benefits

If your employer matches contributions, your next step might be to determine the monetary value of your retirement benefits. You could reduce your gross income by the contributions you make to earn this match, but I don’t. I don’t think contributions should reduce income because I look at them as allocations of income rather than expenses. I’m not losing money by contributing, hopefully, I’m simply moving money to earn more in the future. Taxes, however, feel more like expenses to me because their benefits are felt on a larger scale.

As an example, if your employer offers a Simple IRA they likely opt to match up to 3% of your pretax contributions dollar-for-dollar.You can calculate the value of a Simple IRA (or apply to other retirement vehicles) like this:

$60,000 * 0.03 = $1,800 in annual contributions withheld from pay
$1,800 * 2 (matching dollar-for-dollar) = $3,600 allocated to the Simple IRA
Total Value: $1,800 (Employer Matched Portion)

3. Calculating Total Compensation: Health Care Benefits

If you have ever had to pay for health insurance premiums out of pocket, you understand how valuable a covered health care plan at work is. Solid healthcare plans are often worth thousands of dollars per year to employees.

For example: Say your healthcare premiums are 100% covered and you receive $100 monthly contributions to your HSA, plus matching of 50% of additional contributions, up to $600 per year…

$100 (per month) * 12 (months) = $1,200
50% (matching on up to $600 of contributions) = $300
$355 (cost of employer-paid premiums) * 12 (months) = $4,260
$13 (employer-paid eye care premium) * 12 (months) = $156
Total: $5,916

4. Calculating Total Compensation: Taxes & Other Factors

Accounting for tax, social security, and medicare withholding is not complicated. The easiest way to get an estimate is to review your pay statements and note the average monthly withholding.

When combined with the calculations above you arrive at your net total compensation package:

$60,000 – [12 * (avg monthly tax withholding + social security + medicare)] + (annual benefits – benefit taxes) + reimbursements & all other earned income = total compensation.

Gross Salary$59,000
NET TOTAL:$54,073
Annual Bonus$1,000
Annual Taxes$(13,743)
Retirement Benefits$1,800
Health Care Benefits$5,916
Reimbursements $100
GROSS TOTAL:$67,816

5. Subjective Factors

In the long-term, job satisfaction is likely the most important factor to consider when calculating your true total compensation package. Though hard to quantify monetarily, it is the intangible factors that often prove most valuable to employees.

I like working for smaller companies where I can participate in a firm’s growth and more easily demonstrate value. I also like short commutes, preferably not through heavy traffic.

Leave a Reply