Daily Archives: August 16, 2010

Total Compensation

Last week, I was chatting with a friend who recently changed jobs. He told me that just before he left his previous position, he was informed about how much his employer had been paying for his family’s insurance coverage. He was shocked to learn that, if that amount was added to his salary, it would represent nearly 20% of his total compensation. Let’s say that this person makes $48,000 a year. That means that their employer also pays $12,000 a year in health insurance premiums. Their total compensation is $60,000 and one-fifth of that goes to health care.

Now, it’s not quite that simple. For starters, that $12,000 is tax-free to the employee, unlike the $48,000 in salary. What’s more, the employee typically doesn’t realize just how much their employer is paying towards their insurance coverage. And, while people typically want benefits, they also like a bigger paycheck. Offering someone a $48,000 salary plus health insurance (a total compensation of $60,000 in our scenario) or offering that person $56,000 and no health insurance would not make for an easy decision on the employee’s part.

Fortunately, one of the many things that health reform does is require employers to identify the amount they contribute to health insurance on an employee’s W-2 income tax form. Now, based on emails I’ve received from my well-intentioned but horribly misinformed relatives, this information is being twisted in cyberspace to suggest that you will start being taxed on your health insurance. That is simply not true. But you will have a better idea of how much total compensation you are receiving for getting up and going to work every day–and if you keep tabs on it, you might start to see that your total compensation goes up every year, but your take home pay does not. Why? Because all of the increase in your compensation is being used to pay for the increase in the cost of insuring you and your family.

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Posted by on August 16, 2010 in Uncategorized

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