In this issue:


Request Social Security Earnings Statements Online

It’s important to keep track of your Social Security earnings in the same way you do your 401(k) retirement savings. Did you know that you can request a personalized Social Security report online at www.socialsecurity.gov/
statement? You will need to provide your name (as shown on your Social Security card), Social Security number, date of birth, place of birth and mother’s maiden name. Your personalized statement will be sent to you by U.S. mail in 2-4 weeks.

Your Social Security Statement will include your earnings history and an estimate of how much you and your employer paid in Social Security taxes, as well as estimates of benefits you (and your family) may be eligible for now and in the future.

You should check your Social Security earnings record at least once every three years. Errors in your earnings record are more likely to occur if you change jobs frequently or have more than one employer.

 



Benefits at Work Glossary


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Your “Hidden” Paycheck
Calculating Your Total Compensation

If you were to ask most people how much their pay was, they’d probably refer to the number at the bottom of their paycheck. But most employees don’t realize that a good portion of their total compensation is “hidden” in the form of employer subsidies and benefits. Taken together, benefits and perquisites (or “perks”) such as health premiums, retirement plans, vacation days and other employer-provided programs can add 25 to 50 percent to an employee’s annual cash compensation.

If your employer already provides you with an annual statement estimating your total compensation, this issue of Benefits At Work will help you better understand elements of your statement. If you do not receive an annual total compensation statement, this issue will help you understand, and possibly estimate, the value of your own hidden paycheck.

What is Total Compensation?

Your total compensation includes three components:

  • Cash Compensation: Cash compensation means your total gross earnings. This may include hourly wages or salary, overtime, bonuses, or commissions. When you think about your cash compensation, don’t forget that a significant portion of your pay covers time off benefits such as paid vacation, holidays and sick leave. For example, let’s say that “Mary” is eligible for 10 company holidays and 15 days of paid time off for vacation and sick leave. Mary’s paid time off accounts for nearly 10 percent of her cash compensation (see the example below for more explanation).
  • Benefits Required by Law: Your employer makes contributions on your behalf for Social Security, Medicare, workers’ compensation insurance, and state and federal unemployment insurance.
  • Benefits Not Required by Law: These types of benefits vary by employer, but may include medical, dental, vision, disability, and life insurance; stock options or stock purchase plans; retirement savings plan contributions; commuter subsidies; car allowances; tuition reimbursement; and perks such as uniforms, free parking, subsidized gym memberships, and free snacks and beverages.


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How is Total Compensation Calculated?

Summary View:
Below is a very simple example of a total compensation calculation (state-mandated benefits, which vary, have not been included). Our sample employee is “Mary” whose cash compensation equals $50,000 per year. But Mary’s total compensation is actually $60,131 ($10,369 or 17% higher) after employer benefits and subsidies are added in:

Summary View
  Amount % of Total Compensation
Cash Compensation $50,000 83.0%
Employer Tax Subsidies $3,881 6.5%
Employer-Provided Benefits $6,488 10.5%
Total $60,131 100.0%


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Detail View:
The tables below explain how the value of each component of Mary’s compensation is calculated. If you’re good with figures, you will be able to make similar estimates on your own compensation. The Description column will tell you the percentage for standard calculations. The Calculation column will show how the item was calculated for Mary.

Cash Compensation
Item Description Value
Base Pay

Mary’s base pay is $47,500/year before taxes & withholdings.

 $47,500
Bonus

Mary received an annual bonus equal to about 5.3% of her base pay.

 $2,500
Holidays & Paid Time Off

Mary has 15 paid time off days and 10 holidays, or 25 days per year (25 days x 8 hours per day = 200 hours ÷ 2080 total hours per year = .096 or 9.6% of Mary’s cash wages).

 $4,800
(already included in base pay)
Total $50,000


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Benefits Required by Law
(not including State mandated benefits)
Item Description Calculation Value
FICA (Social Security Contribution)

The employer and employee each pay 6.2% on gross pay up to $87,000. Mary earns less than $87.000 so she has not reached the $5,394 maximum.

 $50,000 x .062 $3,100
Medicare Contribution

The employer and employee each pay 1.45% of gross pay. There is no maximum contribution.

 $50,000 x .0145 $725
FUTA (Federal Unemployment Insurance)

The employer pays 0.8% on gross pay up to $7,000. Mary earns more than $7,000 per year, so she has reached the $56 maximum.

 $7,000 x .008 $56
Total $3,881


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Employer-Provided Benefits
Item Description Calculation Value
Employer's 401(k) Match

Mary’s employer matches 50% of first 6% of her 401(k) contributions. She contributes more than 6% of her pay, so she receives the full benefit of the matching contribution.

 ($50,000 x .06)
x .5		 $1,500
Health & Welfare Benefits

At Mary’s company, the total cost for health, life and disability insurance is about the national average—10.5% of an employee’s pay. Mary pays only 5% of the total cost of her benefits; her employer pays the remaining 95%.

 ($50,000 x .105)
x .95		 $4,988
Total $6,488


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Benefits At Work is a newsletter provided to ArlenGroup clients. The contents are generic in nature.  Please consult your summary plan description or insurance provider(s) for terms and conditions specific to your plan and coverage.  Any off-site page links are provided as a service to web users and does not mean that ArlenGroup endorses or accepts any responsibility for the content, accuracy or the use of the external site or that ArlenGroup is affiliated in any way with the operator of the external site. If you have any questions or comments regarding this issue, please direct them to benefitsatwork@arlengroup.com.

© ArlenGroup, 2003