How Much Are Employer Benefits Worth?

When selecting an employer, understanding the value of the benefits offered is critical. Just because one employer may offer a higher salary doesn’t mean they are offering more total compensation than other options.

Let’s explore the value of benefits received by a 60 year-old employee who is married and has two kids (ages 18 and 15). We’ll assume this individual earns $51,017, which was the median average household income in 2012.

Payroll Taxes

The value of some benefits is easier to calculate than others. For instance, regardless of your income, your employer is required to pay half your FICA – Federal Insurance Contributions Act – taxes (covering Social Security and Medicare). The full FICA tax is 15.3% of your income, so you pay 7.65% and your employer pays 7.65%. Assuming a salary of $51,017, your employer’s FICA contribution is $3,903.

Retirement Plan Contributions

Of course, not all employers offer a 401k match, and the amount of the match offered varies. However, let’s assume a fairly common matching policy where the employer will match 50% of the first 6% of your salary that you contribute. Assuming you take full advantage of the match, your employer will contribute 3% of your salary to your retirement plan, or $1,530.

Paid Time Off

Most employers offer a mixture of vacation, holidays, and sick days. Assuming you get 10 days for vacation, five paid sick days, and seven paid holidays, you get a total of 22 paid days off per year. If you make $51,017 per year and work 260 days, your daily pay rate is $196 ($51,017/260). Multiplying the daily rate by 22 paid days off, you actually make $4,312 for days you don’t work.

Health Care

Some benefits, like health care, are much less predictable. Of course, not all employers offer health care, and it is difficult to determine the value of any benefits offered. However, according to ehealthinsurance.com, our 60 year-old married individual with two kids could purchase a health care plan from Select Health with a $1,000 deductible per individual and $2,500 deductible per family for $1,243 per month, or $14,916 per year. Many employers won’t cover this entire cost, but let’s assume the employer covers 60% of this expense, leading to a total health care benefit of $8,949 contributed by the employer.

Life Insurance

Life insurance, when provided by an employer, is typically term insurance and fairly cost effective. Assuming the employer provides life insurance equal to two times your salary, they would provide $102,034 of coverage. On intelliquote.com, I found that Genworth was willing to provide this level of coverage for $41 per month, or $492 per year.

Long-Term Disability

When offered, employers usually provide long-term disability coverage amounting to approximately 50% of your salary. On Mutual of Omaha’s website, I found that a long-term disability policy providing a $2,000 per month benefit (47% of salary) after a 60-day elimination policy would cost our 60 year-old employee $175 per month, or $2,100per year.

Adding It Up

So how much are the benefits for our hypothetical employee worth?
  • FICA contributions: $3,903
  • Retirement plan contributions: $1,530
  • Paid time off: $4,312
  • Health care: $8,949
  • Life insurance: $492
  • Long-term disability: $2,100
Total employer-paid benefits based on a $51,017 income: $21,290

Consequently, although your salary may be $51,017, your total compensation is $72,307, and the benefits provided by your employer represent approximately 30% of your compensation.

Clearly, benefits can amount to a significant portion of your compensation and should be closely analyzed when choosing an employer. Even if you aren’t currently considering changing employers, knowing how much your employer pays for your benefits might help you appreciate your job more.

About the author

Lon Jefferies, CFP®, MBA
Lon Jefferies, CFP®, MBA

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning firm in Salt Lake City, Utah. He is a Certified Financial Planner (CFP®) and a member of the National Association of Personal Financial Advisors (NAPFA). He possesses an MBA and bachelor's degrees in Finance and Marketing from the University of Utah. Lon writes articles for local magazines such as Utah CEO, Business Connect and Utah Business Magazine, and he consistently contributes articles to online magazines such as FIGuide.com and FILife.com (by The Wall Street Journal). Additionally, Lon is an expert author at EzineArticles.com. Lon has been quoted nationally in publications such as the NY Times and Investment News.

Lon can be contacted at (801) 566-0740 or lon@networthadvice.com. Learn more about Net Worth Advisory Group at http://networthadvice.com and visit Lon's blog at http://www.utahfinancialadvisor.blogspot.com.

2 Comments

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