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Understanding Your Benefits

June 14, 2016

On my first day of work at my first job out of college, I was handed an employee benefits package. It was filled with information that I have never seen before. Claiming tax numbers, something about a 401k, healthcare coverage, stock options, and a bunch of other words I’ve only heard my parents discuss before. I had to select the options I wanted and was told it would come out of my paycheck.

What? My paycheck? What if I select the wrong one and I don’t have enough money to pay rent on my new apartment? I panicked. And called my dad.

You see, my dad was in the insurance industry for his entire career. He was able to look over everything and help explain to me what all words meant and what options I should pick.

But not everyone has a dad that has a 40+ year career working with health insurance. And even if you do, it’s probably a good idea to learn what all of this means on your own.

Here is a very high overview of most of the common benefits and what you should look for.

401k
At some point in time you will retire. Have you ever thought about where the money comes from after you stop working? Government debate aside, you are in charge of saving for your retirement.

A 401k is a retirement savings plan sponsored by your employer. It allows you to save and invest a portion of your paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account.

You have an option to open one and declare how much money you would like to go directly into this account from each paycheck. The recommended percentage differentiates depending on who you talk to, but the majority of people would say somewhere between 5-20% of your paycheck should go into one of these accounts.

The reward for a 401k is usually tied to the possible return on investments. The 401k plan is put into a variety of investments (stocks, bonds, money market accounts, etc), that is decided by your employer.

What to look for?
Some, if not most, companies will match whatever percentage you contribute up to a certain amount. For example, a company may match $.50 for every dollar you contribute, up to 6% of your paycheck. If a company contributes to your 401k, that is a good indicator that they care about their employees.

While some younger employees may not be interested in a 401k because it’s hard to give up money in  their paycheck, and retirement seems like an “I can start later” type of thing, it’s very important you start now. These bank accounts usually receive compound interest, which means the earlier you start saving, the more you will have later.

A rule of thumb is you should at least contribute as much as your employer matches. If not, you are turning down FREE money. That’s right, FREE MONEY.

Susan, a hiring expert from Praxair echoes this advice. “Many companies, especially larger ones, will ‘match’ how much the employee contributes to the fund annually.  The match amount which is fairly common, is between 2-7%.  This is free money to you, so investing early in your career (20's) is critical as some day you will have to retire and afford to support yourself (and/or family).” Full Quote


Vacation Days
This is one of the most self-explanatory of the bunch. Vacation days are the paid days that you are given off throughout the year. Sometimes these are given up front, and sometimes you have to earn them as you work. For example, every month of employment you earn 8 hours of vacation.

What you should look for?
Things to look for are how many vacation days you will receive and if sick days are included in that or not. Some companies take your sick days out of your vacation days, while others may have separate days allocated to sick days. So while 3 weeks may seem like a lot of time out, you will have to use at least a few of those for days you aren’t able to work.

You should also take into consideration if you are allowed to carry them over or not. Most companies allow you to carry some unused days over to the next year, but the amount of how many you carry over may differ.

Healthcare Coverage
If you are a full-time employee, you most likely are offered healthcare coverage. You will have the option to select which type of health care you want. Do you want dental? Vision? Life Insurance? What health care plan? It can all get confusing.

What you should look for
What you should look for is how much you will be paying for healthcare. This does come out of your paycheck. However, a lot of companies will cover a part of your payment, or get a deal on the healthcare for signing with that certain company.

Neil, a recruiter for Schwan Food Company says, “Most companies save on health care since they are buying for a large group of people. If you were to try to find that same care you could spend thousands of dollars each year. That amount is money that you can effectively add to your income. The same goes for dental , vision, and any other insurance plans that they offer. When looking at 2 companies' offers, you may find that the one that makes the best financial sense may not be the one with the biggest salary or hourly wage, but the one that has the best overall package offered.” Full Quote

All of that to say, it’s usually a better plan and a better price to choose the one your company provides. But not always. Look at your options ahead of time. You aren’t legally obligated to sign up for healthcare with your company. But according to new healthcare bills passed in the previous years, you do have to have some type of insurance plan or you will get a penalty on your year-end taxes.

Stock Options
Stock options are another benefit that doesn’t come in the form of money in your paycheck, but could be hugely beneficial for you down the road. Some companies will allow you to buy, or give you, stock in the company that is at a discounted or a stated fixed price.

What you should look for
If you work for a company that looks like it has promised growth in the future, stock options would be a great idea to get into. Many startups offer stock options as an incentive for their employees to work harder and feel invested in the company.

There are many other types of benefits a company may have to offer. The ones listed above are the most standard and confusing of the bunch. Our main piece of advice we would have, is if you don’t understand what a benefit means, ask. The employee working with you on your benefits package is there just for that and will be more than willing to help you with anything you need clarification on. Good luck!

 

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