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In my work as a career coach, I help clients raise their income and get promotions (EFF YES). Sometimes, I do one-off sessions with a client to review a job offer from a potential new employer.
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While I’m not going to go into EVERYTHING we do in that session (that’s what consulting fees are for, my friend!) I do want to deep dive into one issue I see a lot:
A raise in pay that isn’t REALLY a raise.
Oftentimes, clients will come crashing into my inbox like an excited 9-year-old who just got a turbo-charged golf cart.
In their email: This company just offered $X a year! That’s 20% more than what I make now! And if I counter offer and get $Y, that’s an increase of 30%!
Slow Your Roll
While I lo-o-o-o-ve money, a raise in pay isn’t always an increase in your take-home pay. Below, I’ve shared a few secret ways a company will make a package offer seem like it’s more $$$, when it’s actually not.
Overall, a pay raise doesn’t matter. What truly matters is your take home pay. Below, i’ve shared some of the top issues that keep you from banking a larger check:
<< Aside: Sharing everything I know about this topic would take more than the 1,300+ words I’ve allocated for this post. If you’re looking for help growing your career, let’s schedule 1:1 time, here. >>
Checkpoint #1: Healthcare
Without hesitation, I can tell you that differences in healthcare costs are the leading reason a raise isn’t really a raise.
When looking at your offer letter, be sure to get information on the health insurance plan, specifically ask for the “explanation of benefits.”
I’ll sometimes pay a fee to a health insurance broker to have them walk through costs with me or client, but here are some things to check for:
- Deductible: If your deductible at your current job is $1,000, and your deductible at your new job is $6,000 – you’re getting the short end of a deal.
- Medications: What do your meds cost at a pharmacy on their health insurance plan?
- Copays: What will you pay to go to the doctor?
- Out of Pocket Cap: What is the maximum you’ll pay for covered services before your insurance kicks in 100%?
- Premium: How much are you paying per month?
- HSA Offering: Does your new company offer a health savings account?
- Extras: What extras will you gain (or lose) by moving jobs? There are some services, like acupuncture, that a company will cover that’s not covered by an insurance plan.
Honestly, what I do is get the description of benefits (generally sent via mail as a booklet with 50+ pages), and I compare each plan side-by-side. I look at EVERYTHING, including hospital, ambulance, etc.
Checkpoint #2: Cost of Living
Sometimes, a client will get recruited by a company in a different city. Woohoo! Time for an adventure.
But before your sign that offer letter, you need to be sure that the raise is an actual raise. Money spends differently in Atlanta than Los Angeles, for instance!
And I’m NOT just talking about rent. Different states and even cities within them have varying costs of food, utilities, gas, taxes, – even what you pay your dog groomer!
Nerd Wallet has a very handy cost of living calculator here, which is great for an initial gut check. You’re going to want to go a few steps further, getting a handy Google Sheet to note the differences in your most common expenses – specifically discretionary spending.
Your Discretionary Budget May Go Further (or Nowhere) in a New City
These expenses look different for everyone, but here’s a few of mine:
- Esthetician Services
- Car detailing/cleaning
- Average cost of a latte
- Movie Ticket & Theatre Performance Prices
- Airfare Increases***
***Airfare is a cost that is OFTEN overlooked. I travel a lot, and some states (like Oregon) have extra taxes for air travel. Be sure to check into the city you’re moving to, to see differences in air travel taxes.
I first wrote about calculating cost of living here.
Checkpoint #3: A Bonus is NOT a Pay Raise
If I had a dollar for every time a company tried to get a client to accept a bonus as part of their compensation package – in lieu of an actual salary increase – I’d get a new pair of Gucci loafers I’ve had in my shopping cart.
In negotiations, a recruiter or hiring manager will try to make it sound like a bonus is “basically a guarantee.”
Friend, it is absolutely NOT a guarantee. Companies use bonuses to protect themselves if they don’t hit revenue goals, paying employees less to keep investors or their board happy.
<<If you’re looking for help growing your career, I can help. Let’s schedule 1:1 time, here. >>
Even if your bonus structure is based on hitting certain metrics, I personally wouldn’t accept that in lieu of guaranteed salary. The definition behind those metrics can change, as can the whole review process at a company.
Bonuses are kind of fake news. The person or team that hires you may have really great intentions on you getting the bonus in your offer letter, but at the end of the day there are no guarantees.
Bonuses are Withheld at 22% (Federal)
In addition, your bonus is going to be taxed at a higher rate than your salary.
The IRS withholds 22% of your bonus. You may get some (or all) of it back at the end of the year, but it all depends on your tax bracket. If you’re into reading tax law (like me, lol) this article on The Balance goes into more depth.
And that’s just federal taxes – not state. I use this handy calculator to figure out actual take-home pay for bonuses after state taxes.
Take Away: Don’t Count on Bonus Money
You’re not going to see that money until you file your taxes, which is a bummer if you’re depending it – counting it as part of your salary.
When talking about bonuses, I usually half the number a company is offering as immediate take home pay. So if that’s $10,000, I half it to $5,000.
OVERALL: Deciding to move jobs based on a pay increase solely made up of a bonus isn’t the smartest move, in my experience.
Checkpoint #4: Commute Time
Research scientists have found that an “additional 20 minutes of commuting per day has the same negative effect on job satisfaction as receiving a 19% pay cut” (source).
Before committing to a new job with more money, look at the average commute times from where you’ll live to the office. Be sure to estimate based on the time of day you’ll be commuting. And, if you can, test the commute a few times to see how it goes.
If you change train lines, for instance, you may find yourself in a super crowded car and standing for an hour commute. This may be worth it for the salary increase, but only you can decide that!
Checkpoint #5: Hours per Week Worked
The last checkpoint for this post is analyzing your work week. How many hours a week do you work at your current job, and how many hours a week will you work at your new job?
Most companies espouse “work/life balance,” but also expect employees to answer an email at 10PM. Figuring out the work culture of a potential new employer can be tricky, so here are a few questions to ask a future colleague or an employee at the org you’re thinking of moving to:
- What time do you usually get into the office? When do you usually leave?
- Do you work from home? How often?
- How often do you answer emails after dinner//the kids go to bed?
- When did you last take a vacation? How often did you get on the phone with the office?
Ask these questions to someone who *didn’t* interview you. The recruiter or hiring manager you’re working with should be happy to connect you with 2-3 employees to chat with for 20 minutes.
ALSO, ask open ended questions. “Do you answer email at home?” isn’t a great question, because the person you’re talking to will feel pressured to talk about their employer in a positive light.
Instead asking, “How often do you answer emails after dinner//the kids go to bed?” allows for them to be truthful.
If you move to a company that expects you to work 60 hour work weeks and be available after hours, this should be reflected in your offer package. Many a person has moved companies to get a salary increase, only to find they’re working 2x as much for a pay increase of 20%.
Make sure the math adds up.
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