The vast majority of us go to work each day and trade our time for money. As we are weighing job offers we tend to get a laser focus on the listed salary or hourly wage. But you need to look past that shiny salary number to figure out the true wage being offered. After all, every hour you are doing job-related things is one less hour you have to live your life. Here are 10 things you need to account for to determine the actual wage you are being offered.
This article looks only at the financial aspects of a job offer. I don’t mean to disregard non-financial considerations. In fact, issues not related to money, such as company culture and day to day work life may trump the financial considerations. But I leave it to you to weigh the non-financial factors.
Each of these items below modify the actual wage rate you receive. If you are salaried it is perhaps even more important to convert your compensation to an hourly figure. Not every one will apply to you, but it is essential to factor in those that do, so that you have a clear picture of your actual compensation.
To solve for your actual hourly wage use the following equation:
(Listed hourly wage* + other monetary benefits – costs associated with the job)/(total working hours + commute time + prep time)
*If you are salaried a quick way of calculating this is dividing your salary by 2,080 (this is 52 weeks at 40 hours per week).
Retirement Package
Consider the amount a company is willing to match for your 401k or similar retirement plan. In my experience, this can vary significantly. The company match should be added to the base salary or hourly wage when you compare job opportunities.
Vacation
Does the job offer paid vacation? How many weeks a year? Paid vacation hours can be used to reduce the expected total annual working hours, which can increase you hourly wage.
Health Insurance Premiums & Savings Accounts
This can be quite the wildcard. Some firms will cover employees free of charge, while others may charge steep premiums. And the differences between individual and family coverage can be staggering! Subtract the premium costs from you anticipated pay.
Some companies offer Health Savings Accounts (HSAs), which can be a lucrative way to save for future medical costs. Some take it a notch further and will contribute a set amount annually towards an employee’s HSA. If so, add this to your pay if you plan to take advantage of it.
Bonuses
Understand if bonuses are offered and how they are determined. Some jobs have guaranteed bonuses or portions of bonuses; however, most bonuses are not guaranteed. It’s hard to plan for a bonus; however, the company may be able to give a typical range as a percentage of your base pay. Conservatively, you could choose to ignore this.
Misc. Compensation
Filed under this category is anything else has the job offers with monetary value. This could include reimbursements for cell phones, fuel, car purchase, or tuition if continuing education is important to you. Add the value of these perks to your pay.
These first 5 items are generally common sense, but here are a few more that may not be so obvious, but play a large factor nonetheless.
Hours Required
In my experience 40-hour workweeks tend to be the exception rather than the rule. In fact, the salary for my first job out of college was actually based on a 45-hour workweek. When assessing the true hourly wage offered by a job you need to have a good handle on the realistic workweek and its important to find out if you can be paid overtime. Now it’s true that hours vary week to week, but an average trend should bear out. When considering a new job, be sure the company provides a clear explanation of the expectation of hours worked and the hours worked by similar employees. If the job does not pay overtime and more than 40 hours is expected, then add work hours to your analysis. If the job pays overtime and you have a feel for an average number of hours, you can add this to the expected pay.
Commuting Costs
If you live close to work, you may be able to use public transit, or may not need a car at all! However, as you move farther from your workplace the costs and time associated with your commute are increased. Walking, biking or taking public transit may no longer be options.
If you have to drive a vehicle then you will incur fuel and maintenance costs. Jobs in urban areas may require payment for parking and reimbursement of parking fees may or may not be included in you compensation package. If you have children, consider the location of day cares and schools as these can add significantly to the mileage and time associated with commuting.
Add the time it takes to get ready for work, drive to and from work and to decompress after work to the number of working hours. Subtract fuel and parking costs from your pay.
Required Dress
I once had a job that required I wear a button down shirt and tie everyday. Yuck! Not only do I hate wearing ties, they can be pricey. Does the job require a specific dress code what will require you to purchase a new wardrobe? If so, consider the costs incurred to buy the clothes and then replace them every year or so when they are worn out or fall out of fashion. Subtract these anticipated costs from your pay.
Required Business Travel
While your company will likely cover your travel, lodging, meals and rental car, there are other less obvious costs to consider. Luggage costs, house sitters, pet boarding. If you travel a lot, these can add up. Be sure to have a feel for how often you will travel and subtract any costs from your pay.
Don’t forgot about the time associated with traveling! Often, when traveling you have to leave earlier than normal to get to the airport and then you tend to work longer days or evenings to catch up on the time you missed while flying. Take your best guess and add this to the expected amount of work hours.
Coffee/Refreshments
This may seem a minor thing, but for many, a daily (or hourly!) coffee is a habit. Not all jobs provide free coffee and refreshments. In fact, my former job required weekly contributions to a “coffee fund”. If this is not provided, will you turn to daily purchases at coffee shops or convenience stores? Those can really add up! In a given year there is 261 or so working days. Buy a coffee each day for $2.00 and you are spending $522 a year! You could make the case to subtract the costs of coffee/refreshments from your pay if the job does not offer it, but I prefer to add these costs as a benefit if the job provides them.
So, let’s take a look at an example:
John Doe is offered a salary of $85,000 at Company A and a salary of $65,000 at Company B
| Category | Company A | Company B |
|---|---|---|
| Overtime | No | No |
| Typical Work Week | 45 hours | 40 hours |
| 401k Match | 3% | 5% |
| Paid Vacation | 2 weeks | 3 weeks |
| Reimbursements | Cell Phone $40 per month | Cell Phone $40 per month |
| Insurance Premiums | $100 per month | Free for individual coverage |
| Commute | 50 miles round trip, 45 mins, 1 hour prep, 1 hour decompress | 10 miles round trip, 15 mins, 1 hour prep, 1 hour decompress |
| Attire & Costs | Business Formal, estimated at $500 per year | Casual, no cost since his everyday clothes suffice |
| Bonuses | No bonuses | Yes, average 5% of salary |
| Travel | 30 days of travel per year, kennel cost of $25 per day | None |
**Let’s assume John’s car averages 30 miles per gallon and fuel averages $2.50 per gallon.
*** I’ve assumed travel days are 12 hour days when factoring in additional time for travel and longer work hours to catch up. Also, John has a dog that needs kenneling when he travels.
To the spreadsheet!
Here is how Company A’s offer looks after it is modified. Remember a $85,000 salary starts off at $40.87 per hour….
| Category | Pay Adjustments | Hour Adjustments |
|---|---|---|
| Typical Work Week | — | 260 |
| 401k Match | $ 2,550.00 | |
| Paid Vacation | — | -80 |
| Reimbursements | $ 480.00 | |
| Insurance Premiums | $ (1,200.00) | |
| Commute** | $ (1,045.83) | 878.5 |
| Attire & Costs | $ (500.00) | |
| Bonuses | — | |
| Travel*** | $ (750.00) | 120 |
| Total | $ (465.83) | 1178.5 |
| Salary Plus Adjustments | $ 84,534.17 | — |
| Actual Work Hours | — | 3258.5 |
| Actual Hourly Wage | $ 25.94 | 2575 |
And here is how Company B stacks up. Initially, this salary equates to $31.25 per hour.
| Category | Pay Adjustments | Hour Adjustments |
|---|---|---|
| Typical Work Week | — | — |
| 401k Match | $ 3,250.00 | — |
| Paid Vacation | — | -120 |
| Reimbursements | $ 480.00 | — |
| Insurance Premiums | — | — |
| Commute** | $ (205.00) | 615 |
| Attire & Costs | — | — |
| Bonuses | $ 3,250.00 | — |
| Travel*** | — | — |
| Total | $ 6,775.00 | 495 |
| Salary Plus Adjustments | $ 71,775.00 | — |
| Actual Work Hours | — | 2575 |
| Actual Hourly Wage | $ 27.87 |
After running the numbers, it’s clear to see that although Company B’s salary offer is quite a bit lower, the actual hourly wage is HIGHER than Company A!!!
Next time you are considering moving jobs, make sure you factor in these 10 items!
Thanks for reading!
Great breakdown and comparison example. I’ll admit, I’ve been seduced by shiny big numbers in past jobs when I was younger. Now it’s all about the benefits and ability to work from home!
Cheers!
Thanks Joel! I figure I want to maximize the value of my time and trade as little of it as possible to someone else for money. With the extra time available, the sky is the limit to what you could do. Travel more? Learn a new skill? Start a business or side hustle? Get in shape? Why not?
That was great. Benefits sure can make or break a job.
Thank you! Benefits may have significantly different different value to different people, so it’s important to look at how each affects your specific situation.
The sanity of commute and travel would definitely be factors for me. Thanks for the numerical breakdown !
Absolutely. Thanks for reading!
Excellent and thorough post. There’s definitely more to compensation than just surface salary!
Thank you!
This is a great post! I love how you break everything down, I will definitely keep this in my for the future.
And also – I am APPALLED that the “coffee fund” was mandatory! What about those who don’t drink it? I’d be mad to have to pay for my coworkers beverages, regardless of how much I like them as people (especially after coffee, lol).
Thank you! To be honest the coffee fund was not “mandatory”; however, it was pushed onto non drinkers aggressively by their peers. That’s just one of the “perks” of that government job.