B

UDGETING FOR

E

MPLOYEE

C C

OLLEGE

:

OMPENSATION AND

B

ENEFITS

Andrea Morgan, Gary Moore, and Melissa Greenslade Program Coordinators Office of Financial Aid University of Arkansas

C ONSIDERATIONS FOR YOUR FIRST JOB

 Compensation   Pay Overtime   Taxes Cost of Living  Benefits    Insurance Retirement Leave Time  Other Benefits

E MPLOYEE C OMPENSATION

 Salary   Annual rate of pay Set amount of pay per paycheck   Work until the job is done; no overtime pay Often referred to as exempt employees  Wage   Hourly rate of pay Minimum wage is currently $7.25/hour    Paid based on the number of hours actually worked Paid overtime if over 40 hours worked per week  Overtime = 1.5x wage Often referred to as non-exempt employees

C OMPENSATION T ERMS

 Gross Pay – total amount of your pay before any deductions  Take-Home (Net) Pay – pay actually received by an employee after deductions, including taxes, health insurance premiums, retirement contributions, etc.

 Commission – payment based on employee meeting certain sales goals; usually a percentage of those sales  Bonus – money given to an employee in addition to the employee’s usual compensation  At-Will Employee – Most employees are “at will” meaning that your employment can be terminated at any time for any lawful reason

E MPLOYMENT F ORMS /T AXES

  Form I-9   Employment Eligibility Verification From Verifies your eligibility to work in the U.S.

 Must provide documentation to prove eligibility: driver’s license, passport, social security card, birth certificate, or other documentation W-4 Form  Tells the employer how much money to withhold from your pay for federal taxes (exemptions)    The fewer exemptions you claim, the more that will be withheld from your paycheck If you withhold too much then you will get a refund when you file taxes, but are not paid that money during the year If you withhold too little, then you could end up having to pay taxes at the end of the tax year

E MPLOYMENT T AXES

 Federal income taxes  Social Security and Medicare Withholdings   Also called FICA taxes Approximately 7.65% of your pay  State and Local Income Taxes   Vary by location States can have no income tax, flat tax, or progressive tax

O THER P AY C ONSIDERATIONS

 Pay Periods  How often are you paid?

   Monthly (12 pay periods/year) Bi-weekly (26 pay periods/year) Other  Cost of Living  How much it costs to meet your basic needs where you live

C OST OF L IVING E XAMPLE

 Fayetteville, AR vs. San Diego, CA    If you make $30,000 in Fayetteville, to have the same standard of living in San Diego, you would need to make $43,032 Groceries will cost 17% more in San Diego Housing will cost 148% more    Utilities will cost 20% more Transportation will cost 26% more Healthcare will cost 22% more  Cost of Living (Comparison) Calculators Data from CNN Money: www.cgi.money.cnn.com/tools/costofliving/costofliving.html

E MPLOYEE B ENEFITS

 Non-wage compensation offered to employees  Health Insurance      Other Insurance Flexible Spending Accounts Retirement Leave Time Other Benefits  On average employee benefits provide a 31% boost to employee compensation

H EALTH I NSURANCE

 Enrollment is often allowed only within 30 days of hire, during open enrollment periods, or if there is a qualified change in family status  Qualified change = change in marital status, change in number of family members (birth, adoption, child reaches age 26, etc), change in coverage to spouse or dependent  Types of Health Insurance Plans  HMO (Health Maintenance Organization) – coverage is limited to doctors who contract with the HMO, a primary care physician (PCP) oversees your care and refers you to specialists as needed    PPO (Preferred Provider Networks) – allows subscribers to use doctors, hospitals, and providers outside of network for a fee, no PCP required High Deductible Health Care Plan – high deductible plan with low monthly premiums designed to offer minimal day-to-day coverage but protect you in the event of a catastrophe Point of Service Plans – combines aspects of HMOs and PPOs; generally requires a PCP to make referrals to other doctors within the network

H EALTH I NSURANCE T ERMS

 Health Insurance Premium – the employee’s cost of the insurance, often withheld from each paycheck  Co-Pay/Co-Insurance – your share of the healthcare cost  Deductible – the amount you have to pay out of pocket before the insurer covers costs  See Sample Health Insurance Chart handout

O THER I NSURANCE



Employers may offer other forms of insurance

    Vision Dental Disability – pays a portion of your salary if you become disabled or unable to work due to injury or illness Life – Pays an amount to your beneficiary if you die  You must choose (and update) your beneficiary or beneficiaries

C AFETERIA P LAN

 A Cafeteria Plan is a plan that offers flexible benefits using pre-tax income  Employees choose their benefits from a selection offered by the employer.

  The selections can include medical, accident, disability, vision, dental, group term life insurance, and reimbursement for child care or medical expenses Once you opt in to a Cafeteria Plan, you may not change until the end of the plan year unless you have certain special circumstances

F LEXIBLE S PENDING A CCOUNTS (FSA)

   Designated, pre-tax amount of your gross income is deposited into an account to pay for eligible costs     Reduces taxable gross income Subject to maximums set by the IRS You are reimbursed from the account for eligible costs You lose unused amounts in the account at the end of the year Healthcare FSA   Eligible expenses: deductibles, co-pays, over-the-counter medicines (requires prescription), physical therapy, contacts, braces, etc.

Entire designated annual amount is available January 1 or after the first contribution is made Dependent Care FSA  Reimbursement for daycare or other dependent care expenses that allow you to go to work  Qualified dependents: children under 13, dependents of any age that are physically or mentally incapable of caring for themselves

R ETIREMENT B ENEFITS

 Defined Benefit Plan – pays an amount based on a pre determined formula; often called a pension  Defined Contribution Plan – retirement amounts are based on the contributions of employee and employer, and any investment earnings on the account   401(k) – offered by public or private for-profit companies 403(b) – offered by tax-exempt or non-profit organizations  Employer Match – many employers match a portion of the contributions employees make to their accounts  Vesting – your right to the money in your account   You are always 100% invested in the money you contribute Employers may have a vesting schedule that outlines how much of their contributions you own

L EAVE T IME

     The amount of time off you may take from your job Vacation, Personal, and/or Sick Leave  Some employers divide your time off into these categories Paid Time Off (PTO)  Bank of leave time not allotted to any specific category Unpaid Leave of Absence  Time off that is not paid; employer’s discretion whether allowed, unless it is FMLA Family Medical Leave (FMLA)   Mandates unpaid, job-protected leave for up to 12 weeks a year to care for a sick or injured family member (spouse, child, or parent) or recover from your own illness or injury Does not apply to small businesses (less than 50 employees); part-time workers, or for short-term illnesses

O THER B ENEFITS

 Employers may also offer a variety of other benefits:  Tuition Reimbursement      Fitness Center Access Parking Fees Childcare Mileage/Gas Reimbursement Etc.

G ETTING P AID

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Employers use different methods of paying their employees:

   Paycheck with a paycheck stub  a physical check with attached information to show deductions; the employee is responsible for handling the check Direct Deposit  Pay is directly deposited into your bank account Payroll Card  A prepaid card that has money electronically loaded on it, used similar to a debit card  There may be fees associated with using a payroll card

U NDERSTANDING Y OUR P AYCHECK

Included on every paycheck stub:  Pay Period – time period covered by the check (weekly, bi weekly, twice a month, monthly)    Gross Pay – total amount earned before deductions Net Pay – amount the employee “takes home” after deductions Federal Withholding Tax (FT or FWT) – amount withheld to pay federal taxes  Based on information provided on the W4    State Withholding Tax (ST or SWT) – amount withheld to pay state taxes Social Security (SS, SSWT or OASDI) and Medicare (MWT or Med) or FICA Taxes  May be combined or listed separately on your pay stub Year-to-date (YTD) – totals of pay and/or deductions made for the year up to the pay period on the paycheck

U NDERSTANDING C ONT ’ D .

Y OUR P AYCHECK ,

Items that may also appear on your check stub:  Local Tax – may apply to employees of certain cities, counties or school districts   Insurance Deductions– amount withheld for medical benefit premiums Retirement – amount you contribute to your retirement plan     Childcare Assistance/Dependent Care Deduction Leave Time – vacation hours or sick hours used to date and remaining Other Voluntary Deductions from your paycheck (parking, donations, gym membership) Important Notices – a portion of the paycheck may be designated to communicate important information like wage increases or tax information

U NEMPLOYMENT B ENEFITS

 Payment from the government to unemployed people  The amounts of previous earnings and time worked (base period) are used to determine the benefit amount  The average weekly benefit is 36% of your previous weekly wage  Must register and document seeking work  Previously part-time, temporary, and self-employed workers do not qualify  Generally, the worker must be unemployed through no fault of his/her own  Register with the state unemployment agency, ex: Arkansas Department of Workforce Service

COBRA H EALTH I NSURANCE

 Provides certain (former) employees and dependents the right to temporary continuation of health insurance coverage at group rates.  Must have been covered under the group health plan of an employer with 20 or more employees the day before the qualifying event  The qualifying event determines who the qualified beneficiaries are  More expensive than the insurance for active employees since the employer will not be paying part of the premium.  You, spouse, and dependent children can receive COBRA benefits for 18 months if employment is terminated

S ELF EMPLOYMENT

 Speak to an attorney and an accountant regarding the many ways you might structure your business and the many legal and financial considerations to take into account.  Remember that as a self-employed person, you will need to pay employment taxes to the IRS at tax time.  You will also want to consider health insurance coverage and retirement plans.

N EGOTIATING SALARY AND BENEFITS FOR YOUR FIRST JOB

 Do not immediately accept: ask for time to consider the offer  Consider the entire job package – not just the wages/salary  Think about responsibilities, benefits, perks, hours, work environment, flexibility, and other preferences you may have  Research the typical pay for similar jobs (remember cost of living adjustments) and your level of education and experience  Try not to discuss salary until you have an offer; if pressed, say you are flexible or provide a range, not a specific amount  Even if you are not able to get the salary you wanted, you can negotiate some benefits, such as signing bonus, education, vacation time, flexibility, etc.  Keep your goals reasonable: Remember a new graduate will not have the same negotiating power as someone who has been working in the field for many years

B ACKGROUND C HECKS

     References & Credentials Check  Education, Employment, Licenses, Military Service Record, Workers Compensation Claims Criminal Records Check  County, State, and Federal Criminal Record Searches, Civil Record Search, Sex Offender Registry, Fingerprinting Identity and Credit Check    Confirm identity and right to work in this country Provide insight into personal responsibility & reliability Can check up to 10 years into your past Driving Records Check   If required to operate a vehicle for business purposes Can check the past 3-7 years Physical/Substance Abuse Tests

B EFORE YOU GO …

 Please complete and submit the evaluation form  PowerPoint presentation and handouts will be posted on our website with all other Budgeting For College Seminars

T HANK YOU !

 Contact Information:   Office of Financial Aid; Andrea, Gary, and Melissa Campus location: 114 Silas Hunt Hall     Phone: 479-575-3806 Fax: 479-575-7790 Website: http://finaid.uark.edu/ And find us on Facebook at University of Arkansas Financial Aid!