Quantifying Your Benefits Package
When considering a job offer or assessing your current employment situation, one crucial aspect that demands attention is the benefits package. Employee benefits go beyond just the salary and play a significant role in overall job satisfaction and financial well-being. In Canada, where the labor market is highly competitive, understanding how to quantify a benefits package as part of your compensation is essential. We will explore the key elements of a typical benefits package and discuss methods for evaluating its value.
To quantify the compensation, you need to determine your personal tax rate, as most plans benefit from being partially or even entirely tax-free to the employee. For our circumstance we will use a salary of $54,000 as our benchmark; this is the average income for Canada in 2021, as per Statistics Canada. This would equate to an approximate take-home pay of $42,642, or a 21% tax rate.
1. Health and Dental Insurance
Employer-provided health & dental coverage generally includes medical expenses, such as prescription drugs, physiotherapy, glasses, dental, etc. To quantify what this plan is worth to you, consider how much these expenses cost you per year. Then, take those expenses and increase them by 21%. That is what you would need to earn to pay for them after tax.
It is easiest to look at an example, let’s consider a family of 4 (2 parents, 2 children). All of them go to the dentist, two of them need glasses, there are some prescription drugs required, and visits to a massage therapist, totalling $2500 in expenses. You would need to earn $3,165 to have that much money after tax. Now let’s compare two jobs. One pays $54,000 and those expenses are covered by benefits. The other is only salary, no benefits. The second job would need to pay you 6% more to come out even.
2. Retirement Savings Plans
Another essential aspect of a compensation package is a retirement savings plan. Group RRSP plans allow employees to contribute a portion of their pre-tax income towards retirement with employers often matching a percentage of the employee's contributions, up to a specified limit.
Again, let’s look at an example. If an employer has a 2% matching program, you get $1,080/year on top of your salary deposited directly into your RRSP.
3. Health Spending Account
Health spending accounts provide you with an allowance for health expenses. These plans are typically 100% employer paid and the benefit is tax-free to the employee.
If you get a $1000 health spending account and utilize the full balance, you would have had to earn $1,266 to pay for those expenses.
4. Wellness Spending Account
Like health spending accounts, wellness accounts are an allowance from the employer, to be used for wellness related expenses. These lists can be extensive but often include gym memberships, sports equipment, etc. Unlike the previous benefits listed, this benefit is taxable, meaning whatever benefit you use, you pay tax on, essentially decreasing the value of the benefit.
For this example, let’s consider a $500 wellness allowance. If you used this benefit, you would have to pay tax on $500 as if it was received as income. For a salary of $54,000, the taxes owing would be $105 providing you with $395 of additional compensation.
5. Insurance Benefits – Life, Disability, Critical Illness, Travel Insurance, etc.
These benefits are the hardest to quantify as they cover low-frequency but high-consequence events. Many employees do not see the value in this coverage because they do not think these events will happen to them. The best way to quantify this compensation is to consider how much you would have to pay to get it on your own. This doesn’t consider the fact that as an individual you would need to medically qualify for this coverage, whereas medical evidence is not required with most group insurance. It also doesn’t quantify the true benefit of this coverage if you did have to make a claim, as that number could be significant.
When looking at compensation beyond just salary, these are all things to consider, and this guide can help you quantify the true value of these benefits. Some employers may offer all these coverages, some none, but most a combination of a few. Keep in mind, there are other considerations on top of these items which we aren’t discussing in this post, but should be factored into your overall compensation, such as vacation days, flexible work schedules, maternity/paternity leave benefits, work-from-home options, and more.
To learn more, contract your trusted Zavitz advisor.