How to Calculate the Value of a Compensation Package
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Editor & Writer
Writer
Editor & Writer
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- Salary is only one piece of your compensation.
- Consider all of the monetary benefits when evaluating a position.
- Don't forget about nonmonetary benefits, such as career growth.
When evaluating a new position, many factors should contribute to your decision. In addition to ensuring the job is the right fit, you should look at the entire compensation package during salary negotiation.
Just because one position has a higher salary doesn't always mean it is the highest financial offer. Benefits offered by the company add value to the salary. According to the Bureau of Labor Statistics, for civilian workers, wages and salaries cost employers 69% of total costs in 2022, and benefits accounted for 31% of the cost, on average
Knowing how much your employer intends to spend on you gives you a clear overall picture of what the company offers.
How Much Are You Really Earning?
We will walk you through how to calculate your total compensation offer. While some employers provide a total rewards statement, you can also calculate it yourself. Depending on what is most important to you in a position, you may weigh each benefit differently.
In terms of exact numbers, consider the following:
Your salary or wages are the first part of your compensation. If you're salaried, you will want to find out how much is expected from you. Are you expected to work longer hours or answer emails outside of work? If you're hourly, is there the opportunity for overtime, or will it strictly be a set number of hours? This will help you calculate your earning abilities.
John
John is offered $31.25 an hour. His yearly salary is $65,000, with no overtime potential. John's total salary will be $65,000.
Suzy
Suzy is offered $30 an hour, at 40 hours a week, with the potential to work up to five hours overtime. At time and a half, Suzy can earn $45 an hour for any overtime hours. Her yearly base salary is $62,400, with the potential for an additional $11,700 in overtime pay, totaling $74,200.
The next thing to consider is how much paid time off, or PTO, you are entitled to when starting. Even though an employer might separate personal/sick time and vacation time, you can still calculate the benefits together.
John
John is offered four weeks of vacation and 10 personal days, totaling six weeks. John is paid $1,250 a week based on his $65,000 salary. His paid time off amounts to $7,500 for six weeks.
Suzy
Suzy is offered two weeks of vacation and 10 personal days, totaling four weeks. Suzy is paid $1,200 a week based on her $62,400 salary. Her paid time off amounts to $4,800 for four weeks.
According to a 2021 Employer Health Benefits Survey by the Kaiser Family Foundation, employers, on average, take on 72% of the health care cost for employees enrolled in single coverage and 83% for family coverage.
Using the above averages, for a family plan, you can figure out how much the employer pays each month by dividing the amount of insurance you pay by .17 to get the total number paid to insurance. Then, multiply that number by .83 to get how much your employer pays per month. If you have an HSA, add the amount your employer contributes to that.
John
John's bi-weekly insurance cost is $30 for single coverage. Based on the study's average, John's total insurance cost is $176.47, with John paying 17% or $30 and the employer covering 83% or $146.47. Throughout 26 paychecks, this amounts to $3,808.22 paid by the employer.
Suzy
Suzy's bi-weekly insurance cost is $40 for single coverage. Based on the study's average, Suzy's total insurance cost is $235.29, with Suzy paying 17% or $40 and the employer covering 83% or $195.29. Throughout 26 paychecks, this amounts to $5,077.64 paid by the employer.
A 401k plan is a tax-advantaged retirement savings plan offered by U.S. employers. Your offer may include a 401k match, where an employer contributes a certain percentage to your retirement savings, in addition to your individual contributions.
A company can either match 50 cents for every dollar or dollar for dollar up to a certain percentage. The IRS sets an annual limit on employee contributions. For 2022, it's $20,500 per year for workers under 50 and $27,000 for those over 50.
John
If John is offered a dollar-for-dollar 3% match, the 401k match benefit on his $65,000 salary is $1,950, as long as John elects to contribute 3%.
Suzy
If Suzy is offered 50 cents per dollar up to 7%, the 401k match benefit on her $62,400 salary is $2,184, as long as Suzy elects to contribute 7%. With overtime, the employer match can reach up to $2,597.
- Educational Benefits: If your employer offers tuition reimbursement or pays off your student loans, add that number to your total compensation. These benefits can help you greatly at this company and in your career.
- Disability and Life Insurance: This piece is a bit harder to calculate, but $300 to $800 per year is a good range to consider. While you may not use these right away, they are important to have if something should happen.
- Employee Assistance Program: Employers may offer a variety of wellness and other assistance benefits. These can include gym discounts or counseling. If you plan to participate in any of these, you can calculate how much your employer saves you.
- Flexible Work Options/Commuter Costs: If your employer offers the option to work from home, this could save you fuel costs. If you are evaluating between two positions, consider your commute. One of them may save you more money in gas or tolls, depending on the distance.
- Career Advancement: When you weigh out different job opportunities, you'll want to look at things like career advancement opportunities. While an exact number can't be given here, these opportunities can sway in one job's favor.
Once you gather all of these numbers, take your salary, PTO, employer contributions to health insurance, their 401k match, and what they offer in additional benefits and add them up to get your total compensation amount.
Example Calculation of a Compensation Package
Take a look at how John and Suzy's offers compare.
John
- Salary: $65,000
- Paid time off: $7,500
- Employer contributed health insurance: $3,808.22
- 401k match: $1,950
- Yearly tuition reimbursement: $3,000
- Disability and life insurance: $550
- Wellness stipend: $360
- Total Compensation: $82,168.22
Suzy
- Salary: $62,400-$74,200
- Paid time off: $4,800
- Employer contributed health insurance: $5,077.64
- 401k match: $2,184-$2,597
- Yearly tuition reimbursement: $2,000
- Disability and life insurance: $550
- Wellness stipend: $240
- Total Compensation: $77,251.64-$89,464.64
Once you do this with the positions you're considering, think about commute costs and career advancement. The salary alone isn't everything. Calculating it all out will show you the total value of your compensation package.
Bottom Line
When you understand all of the other monetary benefits in addition to the salary, you will be able to better evaluate the job offer. This math is especially helpful when comparing two positions, as crunching the numbers will show you exactly how much each position is worth. Ultimately, you need to choose the job that is right for you, from company fit to compensation.
