How are benefits and compensation structured in the U.S.?

In the United States, there are several forms of compensation that are offered to employees beyond a salary or hourly wage. In nearly every professional sector throughout the U.S., these non-monetary perks are known as “benefits.”

Depending on where you’re from, some of these benefits may seem unusual. For example, countries like Costa Rica, Brazil, and Argentina offer free or low-cost healthcare to their citizens. Therefore, people from those countries may be surprised that one of the best ways to secure personal healthcare is through the workplace.

Beyond healthcare, employers in the United States often have different practices regarding benefits like retirement, stock options, and paid time off. These additional benefits can be especially important to understand when you’re considering a job offer. In many cases, non-monetary benefits are just as valuable as an employee’s direct salary.

With that in mind, it’s smart to understand these benefits when you’re searching for a new job or being promoted. Quite often, these benefits can help you save money that you might otherwise spend from your salary. To make these benefits and perks easier to understand, let’s look at some common terms and practices you might hear in the United States workforce.

In this guide, we will answer the following questions:

• How do I evaluate a job offer?
• What is total compensation?
• How does health insurance work?
• What is paid time off?
• What is unified PTO?
• What are retirement benefits?
• What are stock options?
• What are some other perks and benefits?

How do I evaluate a job offer?

When considering a job offer, there’s more to think about than money. At times, you might find a job with lower pay, but really good benefits. For example, you might be offered a company automobile or excellent health insurance.

On the other hand, you might be offered a lucrative salary that compensates for benefits that aren’t as appealing. Either way, the best way to make the right choice is to carefully examine the process you’ll go through when considering an employment opportunity. .

With that in mind, let’s take a step by step look at how to weigh the value of each benefit a job might offer.

1. Assess the Base Salary: Start by understanding the base salary that’s being offered. This is the fixed amount you’ll receive before any additional benefits or incentives.
2. Review Bonus Structures: Look into any potential bonuses offered, such as signing bonuses, performance-based bonuses, or annual incentives. Determine how achievable these bonuses are and factor them into your evaluation.
3. Consider Stock Options: If the company offers stock options, evaluate the potential value of these options over time. Understand the vesting schedule and any conditions associated with exercising these options.
4. Analyze Retirement Benefits: Review the employer’s contributions to retirement plans such as 401(k), pension plans, or employer matches. Consider the percentage of your salary the employer contributes and any vesting schedules associated with employer contributions.
5. Evaluate Health and Insurance Benefits: Assess the health insurance coverage offered, including medical, dental, and vision plans. Consider factors such as premiums, deductibles, copays, and coverage for dependents or family members. Evaluate additional benefits like life insurance, disability insurance, or flexible spending accounts.
6. Factor in Paid Time Off (PTO): Understand the amount of paid time off offered, including vacation days, sick leave, and holidays. Consider the flexibility of PTO policies and any restrictions on accruing or using paid leave.
7. Assess Additional Perks and Benefits: Take into account other perks and benefits offered by the employer, such as tuition reimbursement, professional development opportunities, commuter benefits, or wellness programs.
8. Calculate Total Compensation: Once you’ve gathered information on salary, bonuses, stock options, retirement benefits, insurance coverage, paid time off, and additional perks, calculate the total value of the compensation package. Consider using a calculator or spreadsheet to help you compare and quantify the total compensation offered by different job offers.

What is total compensation?

“Total compensation” refers to the complete assessment of all rewards an employee receives from their employer.

Total compensation goes beyond just the base salary and includes various benefits and incentives. This encompasses direct pay such as wages, bonuses, and commissions. But, total compensation also encompasses indirect compensation like employer contributions to insurance, retirement plans, and paid leave.

Furthermore, total compensation takes into account non-monetary benefits such as stock options, education assistance, company vehicles, and retirement plans. Essentially, it calculates the overall value of an employee’s work, acknowledging that rewards extend beyond their salary or hourly pay.

When you’re exploring job offers, a potential employer might even explain a “total compensation” in the form of a numerical value. For example, an employer may be offering a salary of $70,000 a year, while offering a benefits package that’s worth an additional $15,000 a year in the form of health insurance, retirement contributions, and paid time off. Therefore, the potential employer might describe the value of their total compensation as $95,000 a year.

However, if the potential employer does not describe their total compensation as a numerical value, you may be able to calculate the value of their benefits package yourself.

How does health insurance work?

When starting a new job, your employer may offer you various health insurance plans to choose from. Generally, full-time positions are more likely to offer health insurance benefits as part of their employment package to attract and retain employees. This is usually true for salaried or long-term hourly positions in large companies or organizations.

When selecting a healthcare plan through your employer, you’ll typically choose from options provided by the insurance companies your employer has partnered with. This means you’re limited to the healthcare providers your employer has selected for their employee health plans.

Three of the most popular healthcare providers in the U.S. are UnitedHealth Group, Anthem, Inc., and Centene Corporation. Whether it’s one of these three healthcare providers or another, you’ll select a plan based on your needs. As you’re choosing a plan, you’ll want to consider factors like coverage for medical visits, prescriptions, and other healthcare services.

Lower-tier plans typically cover a smaller percentage of your healthcare costs, while more advanced plans might include additional benefits like dental and vision coverage. Likewise, more advanced plans may include preventive services like vaccinations and check-ups.

How much does health insurance cost?

As for the cost, you won’t usually have to pay the entire bill for your insurance. Your employer should contribute a portion of the premium, and you’ll cover the rest. This is typically deducted directly from your paycheck, making the process seamless and convenient.

The amount you pay can vary, but a common range for individual coverage might be between $50 to $300 per month, depending on factors like the type of plan and your employer’s contribution.

What is a premium?

A health insurance premium is the amount of money you and your employer pay to an insurance company for health insurance coverage. It’s typically paid on a regular basis, such as monthly or annually, to keep the insurance policy active. The premium is essentially the cost of buying and maintaining your health insurance coverage.

What is a copay?

Once you’ve enrolled, you can start using your insurance to offset medical expenses. You’ll likely have to pay a small fee, known as a copay, for each doctor’s visit or prescription. After that, your insurance kicks in to cover the remaining costs according to the terms of your plan.

What is a deductible?

A deductible is the amount of money you must pay out of your own pocket for covered healthcare services before your health insurance plan starts to pay.

For example, let’s say you have a health insurance plan with a $1,000 deductible. If you incur medical expenses covered by your insurance, such as doctor’s visits, lab tests, or prescriptions, you’ll need to pay the first $1,000 of those expenses yourself. Once you’ve met your deductible for the year, your insurance plan will start to pay its share of the costs for covered services.

Deductibles typically function within the calendar year and after the new calendar year commences, you will need to meet your deductible again.

It’s important to note that not all healthcare services count towards your deductible. Some plans may cover certain preventive services, like annual check-ups or vaccinations, without requiring you to meet your deductible first.

Deductibles can vary depending on the specific terms of your health insurance plan. Typically, plans with higher deductibles have lower monthly premiums, while plans with lower deductibles tend to have higher premiums.

What is paid time off?

Paid time off (PTO) refers to a policy where employees receive compensation from their employer for designated periods of time when they are not working. This compensation is typically equivalent to their regular wages.

As you’re considering new jobs, it’s important to ask questions about your potential employer’s PTO policies. PTO can encompass various types of leave, such as vacation days, sick leave, personal days, and holidays.

Let’s take a look at the most common types of PTO that employees need to utilize in the U.S.

Vacation days

Vacation pay constitutes paid leave provided to employees for travel, spending time with family or friends, or taking a break from work.

The allocation of vacation days varies among businesses. When you accept a new job, your employer should explain when and how employees can take time off for vacation. For instance, your employer may require employees to provide sufficient notice before utilizing vacation days.

Sick leave

Paid sick leave refers to time off that employees can utilize when they are unwell or injured. This allows people to visit the doctor or simply stay home and rest in order to recover.

The way sick leave is distributed to workers varies from one employer to another. Some give a certain number of hours every year, while others base it on how much a person works. For example, a full-time worker might get 40 hours of sick leave each year, while part-time workers get a share based on how much they work.

Sick leave can also build up over time, depending on how long someone has worked or how many hours they’ve worked. For instance, someone might earn one hour of sick leave for every 30 hours they work.

The following states require employers to offer paid sick leave to their employees.

• Arizona
• California
• Colorado
• Connecticut.
• Illinois
• Washington D.C.
• Maine
• Maryland
• Massachusetts
• Nevada
• New Jersey
• New York
• Oregon
• Rhode Island
• Vermont
• Washington

Not all states require employers to provide paid sick leave. However, employers are often motivated to offer sick leave to workers to incentivize workers. So, even if you don’t live in one of these states, your employer might still offer sick leave.

Personal time

Employees can utilize personal time off for various purposes such as car maintenance, attending events like parent-teacher conferences, and any other non-sick or non-vacation-related activities.

Personal time off does not need to be allocated for specific purposes. Employees can utilize personal time without dipping into their vacation days.

Holidays

Holiday pay compensates employees for time off during designated holidays. According to the Bureau of Labor Statistics, employees who receive holiday pay have around eight paid holidays per year on average.

When it comes to getting time off from work, most companies follow the federal holiday schedule. This means employees get days off for holidays like Memorial Day, Thanksgiving Day, and Christmas Day, just to name a few.

Sometimes, employers also offer floating holidays. These are extra days off that employees can use whenever they want during the year.

Bereavement

Paid bereavement leave offers employees time off to cope with the loss of a loved one. Businesses may offer varying lengths of bereavement leave depending on the employee’s relationship with the deceased.

Parental leave

Paid parental leave permits employees to take time away from work for maternity leave, paternity leave, or adoption purposes.

Depending on the size of the company or organization where you work, federal law may mandate unpaid parental leave. Additionally, your state may have more stringent parental leave regulations. The following states require employers to offer parental leave:

• California
• New Jersey
• New York
• Rhode Island
• Washington
• Massachusetts
• Connecticut
• Oregon
• Washington D.C.
• Colorado

Jury duty

When individuals are summoned to participate in a legal panel at court, it’s referred to as “jury duty.” While on jury duty, your job is to help decide the outcome of a legal case by reaching a verdict.

If you get called for jury duty, your employer might offer you jury duty pay for the time you’re away. In states where there are laws about jury duty pay, they’re required to provide it. You’ll get a written summons from a federal, state, or local court if you have jury duty. Your employer might ask you to show them this summons before they give you paid jury duty leave.

Voting time

Paid voting time allows employees to take time off to vote in presidential and local elections. Typically, paid voting time is limited as employees generally require only a few hours to vote.

Military leave

You may offer paid military leave to employees for various military duties, including active duty, active duty training, or inactive duty training.

All employers must adhere to USERRA (Uniformed Services Employment and Reemployment Rights Act), which requires offering unpaid leave of absence to military employees for up to five cumulative years.

What is unified PTO?

Unified PTO may also be called “consolidated PTO” and encompasses any time when employees receive their regular pay without working.

In the past, employers would often distinguish between specific categories for time off, like vacation, sick leave, personal days, and holidays. In this arrangement, employees receive a set amount of leave for each category, with the opportunity to earn more based on how long they’ve worked somewhere. For instance, an employee might start with two weeks of vacation time and gain additional days after one, three, or five years.

However, in the modern workforce many employers adopt a model of PTO where they simply lump each separate category of paid leave into one category. Employees receive a fixed number of PTO days annually, which they can utilize for any purpose. While some companies prefer traditional leave policies for tracking purposes, PTO offers greater flexibility, empowering employees to manage their time off according to their needs and preferences.

How is PTO administered to employees?

After you’ve landed a new job, your new employer will inform you exactly how they administer paid time off to their employees. Here are four of the most common ways for employees to receive and retain paid time off.

• Accrual: This is the most common policy, where employees earn their PTO over time as the vacation year progresses. For example, if an employee gets 80 hours of PTO per year, they might get 20 hours in the first quarter of the year, 40 hours in the second, 60 in the third, and 80 by the end of the year.
• Carryover: Some businesses let employees carry over unused PTO from one year to the next, allowing them to accumulate more time off. For instance, if someone doesn’t use their two weeks of leave in year one, they’ll have four weeks in year two. This can encourage employees to take breaks but might lead to large payouts if they leave with unused PTO.
• Banked PTO: Here, employees receive a portion of their PTO upfront at the start of the year and accrue the rest gradually. For instance, they might get 50% of their PTO at the beginning, with the rest accruing throughout the year. This gives employees immediate access to some time off but could be financially risky for employers if someone leaves early in the year.
• Unlimited PTO: This policy allows employees to take as much time off as they need throughout the year. While it offers flexibility and can attract talent, there’s often an undisclosed upper limit, and some employees may hesitate to take time off due to concerns about appearing lazy. Setting clear guidelines can help address this.

What are retirement benefits?

As you’re searching for a new job, it’s important to understand the different types of employer-sponsored retirement plans that are available. Employers offer a variety of plans, including defined benefit plans and defined contribution plans. Each type of plan is designed to meet specific savings goals and fit various company sizes and budget constraints.

While not all employers are required to offer retirement plans, many choose to do so as a strategy to attract and retain employees. Employer-sponsored plans are usually provided at little to no cost to employees and offer significant tax benefits to employers, making them a valuable part of an employee benefits package.

Additionally, to enhance the attractiveness of these plans, employers may offer to match the contributions made by employees. Let’s take a look at some of the most common retirement packages offered by employers.

401(k):

These plans are a popular type of employer-sponsored retirement account where employees can contribute a portion of their pre-tax salary. For 2023, employees can contribute up to $22,500, and those aged 50 and older can make an additional catch-up contribution of $7,500.

Employers often enhance the value of these plans by offering to match employee contributions up to a certain percentage of their salary. A common matching structure that employers use for 401(k) plans is to match 50% of employee contributions up to 6% of their salary.

For example, if an employee contributes $3,000 to their retirement plan, the employer would contribute an additional 50% of that amount, which is $1,500. This brings the total contribution to the employee’s retirement plan to $4,500 for the year.

Employees can begin withdrawing from their 401(k) accounts without penalty starting at age 59½. Withdrawals prior to this age typically incur a 10% early withdrawal penalty unless they fall under exceptions such as financial hardship or specific medical expenses. Furthermore, participants must start taking required minimum distributions (RMDs) at age 72, although those still employed may delay these withdrawals until retirement.

Roth 401(K):

Your employer might also provide a Roth 401(k). Similar to a traditional 401(k), it’s funded with deductions from your paycheck and provides a set of pre-selected investment choices.

However, unlike a traditional 401(k) which you fund with pre-tax money, contributions to a Roth 401(k) are made with after-tax dollars. This means you won’t face additional tax obligations later. If you make a qualified distribution, any earnings can be withdrawn without being taxed

457

The 457 plan is like a 401(k) plan but for state and local government workers. It operates similarly and has the same contribution limits as a 401(k) plan. However, there’s one key difference between them.

If an employer offers both a 457 plan and a 401(k) plan, employees can fully contribute to both, effectively doubling the contribution limit for a 401(k) plan. This means a participant could contribute $23,000 to each plan, totaling $46,000 in 2024.

403(b):

These plans are usually only available to employees of tax-exempt organizations like schools and hospitals. 403(b) plans also allow employees to contribute up to $22,500 of their salary in 2023. Folks who are aged 50 and over can make an extra $7,500 per year, which is sometimes called a “catch-up contribution.” These plans operate similarly to 401(k) plans, with tax-deferred growth on contributions and investments.

Like 401(k) plans, participants can start accessing their 403(b) funds at age 59½ without penalties. Early withdrawals, if taken before this age, may incur a 10% penalty. Like in 401(k) plans, participants must begin taking RMDs at age 72, unless they are still employed, which allows them to postpone withdrawals. Similar to 401(k) plans, employers often match 50% of employee contributions.

Roth 403(b):

To qualify for a Roth 403(b) you must also work for a tax-exempt organization. A Roth 403 (b) is only available if your employer offers it, so you’ll need to ask your employer when you’re hired.

With this option, you contribute after-tax dollars, but you can withdraw those contributions tax-free once you meet certain requirements. Plus, any earnings in the account can also be withdrawn tax-free. This can be particularly helpful if you anticipate being in a higher tax bracket during retirement.

Traditional Pension Plan

This may also be called a “Defined Benefit” (DB) plan and has become less common over time. Defined benefit pensions place the responsibility of saving and investing for retirement solely on the employer.

These plans guarantee a set monthly payment when you retire. This payment could be a fixed amount, like $100 per month, or calculated based on factors like your salary and how long you’ve worked, such as 1% of your average salary for the last five years of work for each year you’ve been with the employer.

Workers who are most likely to be offered a traditional pension plan include unionized individuals in both the public sector (such as federal, state, and local government employees) and the private sector (for instance, automobile assembly workers). Additionally, active-duty military personnel who have served for at least 20 years might be offered a DB plan.

SIMPLE IRA

SIMPLE stands for Savings Incentive Match Plan for Employees. This is an IRA plan typically offered by smaller employers.

Employees contribute to the plan with tax-deductible contributions, while the employer must either match contributions (up to 3% of the employee’s salary) or make nonelective contributions. In 2024, the maximum contribution to a SIMPLE IRA is $16,000. For 2024, employees aged 50 or older have the option to make additional catch-up contributions of $3,500.

What are stock options?

Stock options, which are also sometimes called Employee Stock Options (ESO), are a type of employee benefit that allows workers to buy company stock at a set price after a certain period of time called a “vesting period.”

This is a set amount of time that an employee must wait before they can exercise their options to buy shares at the predetermined price. This period is typically used as a tool for companies to retain their employees. After this period, the employee can then choose to buy the stock at the agreed-upon price, which could be lower than the market value at the time of purchase.

Essentially, if the company’s stock price goes up, employees can buy the stock at the lower price they were guaranteed, potentially making a profit when they sell the shares at the higher current market price.

This setup not only offers potential financial gains for employees but also encourages them to contribute to the company’s success, as they directly benefit from the company’s stock doing well. This can be a valuable part of an employee’s compensation package, providing an incentive to stay with the company and work towards its growth.

What are some other perks and benefits?

In addition to the benefits listed above, there are several other benefits an employer may offer its employees. As you’re applying for a job, be sure to ask your employer about any of the following benefits.

Life and Disability Insurance:

Employers may offer various types of insurance, including life insurance, short-term disability, and long-term disability insurance. These help provide financial protection for employees in case of serious illness, injury, or death.

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs):

These accounts allow employees to set aside money on a pre-tax basis to pay for eligible healthcare expenses or dependent care expenses, which can result in significant tax savings.

Tuition Assistance:

Some employers offer tuition reimbursement or direct support for further education and training that is related to the employee’s job. This can be a significant benefit for those looking to advance their skills or gain new qualifications.

Employee Assistance Programs (EAPs):

These programs provide confidential assessments, counseling, and referrals to employees for personal and/or work-related issues, such as stress, financial issues, legal issues, family problems, office conflicts, and substance abuse.

Transportation Benefits:

These can include transit passes, parking reimbursement, and support for carpooling and bicycling. Some companies offer shuttle services or subsidies for public transport to encourage eco-friendly commuting.

Remote Work Options

Remote work options are increasingly popular, allowing employees to work from home or other locations outside the office. This flexibility can help employees manage their time more effectively, reduce commuting stress, and achieve a better balance between their professional and personal lives.

Conclusion

When you’re considering a job offer, it’s important to look at more than just the salary. Things like bonuses, stock options, retirement plans, health insurance, and paid time off all play crucial roles in determining the true value of an employment opportunity.

These benefits and non-monetary forms of compensation may be surprising if you’re moving to the U.S. from another country. But, after carefully reviewing a job offer, you can figure out which benefits are most important to you.

After you’ve secured a job and started to earn a salary, you will probably begin using debit cards and credit cards. Depending on where you’re coming from, the use of credit and debit cards in the United States might be unfamiliar to you.

Learning how to use bank cards is a pivotal part of life in the United States. To shed light on the subject, we’ll take a close look at credit and debit cards in our next article. We will explore best practices regarding card fees, interest rates, and reward programs. Understanding the details of credit and debit cards can help you make a safer and smoother transition to the United States.

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