A NEW ROLE COMES WITH NEW FINANCIAL CONSIDERATIONS. BEFORE YOUR FIRST DAY, LEARN THE OPTIONS YOU MAY HAVE TO NEGOTIATE FOR A FAVORABLE FINANCIAL FUTURE.
While the topic of salary tends to grab the negotiation spotlight, the job offer process provides a chance to negotiate a range of benefits, reimbursements, and other forms of compensation that can have long-term impacts on your financial well-being.
Here are some key questions and considerations to take into account if you’re headed into a negotiation process with your prospective new employer:
Take the Bonus or the Raise?
In your recent job search process, you were probably asked for your salary history by interviewers. While this question is being outlawed in several states, if you don’t live in those states and this isn’t the last job you will ever have, you’re likely to get asked that question again sometime in the future. When you’re asked that question, bonuses don’t count. The amount you make today is likely to dictate what you will make in the future. So even if your company is offering you a starting salary of $60,000 with a one-time bonus for $5,000, you’ll still have to tell future employers that your salary was only $60,000. Negotiating for a salary bump, even if it’s only $3,000, may well start your salary negotiations at a higher level with your next employer. A bonus sounds nice now, but it could limit your future earning potential.
The other reason to negotiate for the raise? You’ll potentially keep more of your salary and give less of it up to taxes. Because bonuses are taxed as supplemental income, you’ll lose 25% immediately. In addition to that 25%, you’ll also be taxed for Social Security, Medicare, and whatever state taxes apply. By the time your bonus check arrives, the take-home amount may be close to 60% of the stated amount.
Relocation Assistance – As Good as it Seems?
Because relocating for a job can be expensive, employers often offer to cover the costs of the move. While at first this may sound like a ‘free’ benefit, the 2017 Tax Cuts and Jobs Act changed that. Reimbursements by a business to an employee are now considered ‘fringe benefits’, meaning that they are taxable wages and must be included for federal income tax withholding1. So, even if you submit receipts to your employer for $2,000 of moving expenses, and they reimburse you that full amount, you’re still stuck covering the taxes on that $2,000 as if they were wages.
To avoid the tax penalty, consider negotiating with your employer to ‘gross up’ your check. Here’s how it works: Instead of submitting receipts for your employer to reimburse – an arrangement known as an ‘accountable plan’ – ask your employer if they would be open to a nonaccountable plan. In this arrangement, your employer gives you a set amount for your moving expenses and lets you decide how this money will be spent. The catch: All of the payment is still taxable to the employee as a benefit, so federal income tax must still be withheld on the payment. In this case, you may want to negotiate with your employer to add an additional amount to the payment to cover the additional taxes that must be paid. This is called “grossing up” a check, and it’s done to give you the exact amount of payment after taxes. For example, if you believe you are going to spend $2,000 on moving expenses, you can ask for a gross-up calculation for a set amount equivalent to $2,000 + the expected taxes.
It can be easy to underestimate the true costs of relocation, but to start, a relocation cost budget can be broken into two categories: Costs of Moving and Costs of Living (after you’ve relocated).
Costs of Moving can include the following:
- Moving van rental if you’re moving yourself
- Boxes and packing material
- Movers if you’re hiring someone
- Utility deposits at your new home
- Remaining utility balances at your old home
- Cleaning services if you’re leaving a rental
- Airfare if flying
- Storage unit rental if needed
- Moving insurance
- Temporary short-term housing if you don’t have a permanent home identified yet
Costs of Living can include the following:
- Difference in mortgage or rent payment between your new home and old home
- Difference in monthly utility costs
- Transportation: Do car tabs cost more in your new city? Did your car insurance rate change?
- Do you now have to pay for parking or daily public transportation?
- Groceries: Some cities, such as Seattle, have a much higher average cost of groceries than other locations
- Difference in renter’s and/or homeowner's insurance
- Difference in property taxes and other taxes in a new state
To explore how other costs of living may change in your new location, this cost of living calculator relies on data from the Consumer Price Index to guide you in asking for an appropriate relocation bonus or salary adjustment. As these lists demonstrate, the actual costs of relocating can add up quickly, making the taxes on them significant enough to consider asking for a gross-up.
While paid leave for working mothers has gained popularity, men also stand to gain from paternity leave. With heterosexual couples, when men take paternity leave, women are more likely to stay in their careers, and for every month of leave a father takes, his partner sees a 7% increase in salary2. This increase in one family member’s salary can mean an increase in 401(k) savings or other investments that can grow over time. If you negotiate for leave, you’re negotiating for your family’s future wealth.
In addition, longer lifespans mean that more workers may need to plan to take time off to care for an elderly family member at some point. Caretaking for parents and in-laws ends up being a top reason people (especially women) end up needing to leave their jobs. Women are particularly vulnerable to seeing their plans for retirement get put on hold because of the indirect financial toll that caretaking takes. More time away from work means missing out on opportunities for promotions and pay increases. Negotiating for caretakers’ leave could mean avoiding a difficult choice in the future between keeping your job and taking time off to care for a loved one.
While some benefits may seem too small to bother negotiating for, reimbursement for ‘extras’ can really add up, especially over the long term. Your employer may also be more willing to say ‘yes’ to these perks, because they may come out of a different budget than a salary increase would.
- Wellness Programming – Large employers across the country were expected to spend an average of $3.6 million on wellness programs in 2019 to support a healthier and more productive workforce3. This means that your employer may pay you to hit the gym. Some employers offer to lower your medical insurance premium if you take a health assessment, or they may offer financial rewards for completing healthy tasks like getting a flu shot, completing a race, or meeting biometric targets for cholesterol or blood pressure. Employers know that a healthy employee is less likely to need expensive medical care in the future and is therefore a less expensive employee!
- Professional Development – Your knowledge played a key role in getting you this job, and you probably want to keep advancing your skills to take the next step in your career. Continuing education, however, can be expensive. Your employer may be willing to cover some of those costs, but negotiating tuition reimbursement may also require you to make some promises. To encourage your employer to consider paying for your ongoing education, you can offer a commitment to stay with the company for a certain number of years, with the understanding that you are fully responsible for your education costs if you leave before the agreed upon date. Providing your employer with research on how the skills you’re learning will help add value to your organization can make a convincing argument as well.
- Commuting and Parking – Americans spend between $2,000 and $5,000 on their daily commutes each year4. If you’re a public transit user, your employer may be willing to help offset the cost of a monthly public-transit pass with pre-tax dollars. If you drive, consider asking for reimbursements for mileage, tolls, or parking.
Preparing for the Conversation
- Do your research! Walk into HR’s office with a competitive analysis of what benefits and perks are common in your industry. If your employer’s competitors offer flexible work options, it’s not unreasonable for you to ask for this, too. If they still need an extra nudge, outline how these perks will make you a more effective employee.
- Not everything is negotiable: Before starting the negotiation conversation, understand what is and isn’t on the table. If your company doesn’t offer 401(k) contributions or disability coverage, it’s not worth negotiating for them, as those benefits are subject to intense legal scrutiny. What you can negotiate, however, are benefits that might make up the difference, such as a bonus that you can later invest in a retirement account.
Once you’ve negotiated your compensation and benefits, you may need help managing your new financial reality. The Jackson's educational resouces can provide resources on managing your retirement account, working with a financial professional, and developing a strategy for your financial future.
1. "Employers Tax Guide to Fringe Benefits," IRS, Publication 15-B, 2020
2. "How to Avoid the Mom Penalty," Lauren Smith Brody, Wealthsimple, June 2019
3. "Large Employers to Average $3.6M on Wellness Programs in 2019," Jessica Kent, HealthPayerIntelligence, April 2019
4. "How Much Does the Average American Spend on Transportation?" HowMuch.net, August 2019
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