Employee Benefits explanation

Understand Your Employee Benefits

Employee benefits play an important role in retaining employees and many companies offer various types of employee benefits in order to recruit and retain talented and highly skilled employees! For employees- the benefits are key to understanding your total compensation from your job. Benefits can increase the value of your salary by 20% or more. Before you accept a job offer or make a job change, carefully compare your benefits and the costs of working that specific job.

Some benefits are fully paid by the employer, while others require you to pay all or part of the cost. Either way, employee-sponsored benefits generally are cheaper than trying to get benefits on your own. 

Common types of benefits include:
Health insurance. Employer-subsidized plans, where your employer pays at least some of your premium every month, are ideal. You still have to pay part of the premium along with copays and deductibles, but your portion of the burden will be lightened by your employer’s contribution. Get to know how much your employer is contributing — not all employers cover the same amount.

Dental insurance. Dental insurance often works in the same way as health insurance, with your employer picking up part of your premiums. You will be responsible for copays and deductibles, and you often must receive your dental care from a provider within your plan’s network in order for your policy to apply.

Pensions. Pensions are a retirement plan option where you contribute a certain amount of your income from every paycheck. After you have contributed long enough to be vested (meaning that you’ve worked at your employer long enough to earn the right to employer-provided contributions to your retirement savings plan), and depending on your salary and years of service, you will be paid a certain amount each month in retirement.

401(k) and 403(b) plans. 401(k) and 403(b) plans are tax-deferred plans generally offered through an employer. They allow you to invest with pretax dollars, meaning that your paycheck gets taxed after your contributions to these plans have come out. This leaves you with more take-home pay than if you invested in a Roth Individual Retirement Account (IRA), where all contributions are made after taxes have been taken out.

 When you start withdrawing money from your 401(k) or 403(b) plan, typically after age 59 1/2, you will pay taxes on those withdrawals. Many employers will match your contributions up to a certain amount, giving you free money toward retirement.

Know the Difference Between Pretax and After-Tax

Any deduction from your gross pay is considered a pretax deduction. These deductions ultimately give you a higher net (take-home) pay.
Employer-sponsored pretax benefits are called cafeteria plans or IRS Section 125 plans. Examples include: 

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Accident and health (medical, dental and vision) benefits
Adoption assistance
Dependent care assistance
Group-term life insurance
Health savings accounts
Qualified 401(k) and individual retirement accounts (IRAs)

After-tax benefits will not lower your tax liability; they are deducted after taxes have been withheld. After-tax benefits include health insurance that does not qualify as pretax, Roth 401(k) and Roth IRA investments.

Employer-Sponsored Retirement

Retirement plan offerings vary widely depending on the employer. Ask your employer’s human resources department to answer any questions you have about how the retirement plan works.
Types of Plans
401(k) plans
 Roth 401(k) plans
 403(b) plans
 Employee Stock Ownership Plan (ESOP)
 Pension plan
 Thrift Savings Plan (TSP) and 457 plans

(more on these plans in our Youtube video:

Matching Contributions

Some employers match a portion of your contributions to 401(k), 403(b) or similar investments up to a certain level. Try to contribute up to the maximum that the employer will match because this essentially is free money. For example, if your employer will match up to 6 percent, then you should plan to contribute at least 6 percent to get the full benefit of the matching contribution.