BUDGETING FOR COLLEGE:EMPLOYEE COMPENSATION AND BENEFITS

Andrea Morgan, Gary Moore, and Melissa GreensladeProgram CoordinatorsOffice of Financial AidUniversity of Arkansas

CONSIDERATIONS FOR YOUR FIRST JOB

Compensation Pay Overtime Taxes Cost of Living

Benefits Insurance Retirement Leave Time Other Benefits

EMPLOYEE COMPENSATION Salary

Annual rate of pay Set amount of pay per paycheck Work until the job is done; no overtime pay Often referred to as exempt employees

Wage Hourly rate of pay Minimum wage is currently $7.25/hour Paid based on the number of hours actually

worked Paid overtime if over 40 hours worked per week

Overtime = 1.5x wage Often referred to as non-exempt employees

COMPENSATION TERMS Gross Pay – total amount of your pay before any

deductions

Take-Home (Net) Pay – pay actually received by an employee after deductions, including taxes, health insurance premiums, retirement contributions, etc.

Commission – payment based on employee meeting certain sales goals; usually a percentage of those sales

Bonus – money given to an employee in addition to the employee’s usual compensation

At-Will Employee – Most employees are “at will” meaning that your employment can be terminated at any time for any lawful reason

EMPLOYMENT FORMS/TAXES Form I-9

Employment Eligibility Verification From Verifies your eligibility to work in the U.S.

Must provide documentation to prove eligibility: driver’s license, passport, social security card, birth certificate, or other documentation

W-4 Form Tells the employer how much money to withhold from

your pay for federal taxes (exemptions) The fewer exemptions you claim, the more that will be

withheld from your paycheck If you withhold too much then you will get a refund when

you file taxes, but are not paid that money during the year

If you withhold too little, then you could end up having to pay taxes at the end of the tax year

EMPLOYMENT TAXES Federal income taxes Social Security and

Medicare Withholdings Also called FICA taxes Approximately 7.65% of

your pay State and Local Income

Taxes Vary by location States can have no

income tax, flat tax, or progressive tax

OTHER PAY CONSIDERATIONS Pay Periods

How often are you paid? Monthly (12 pay periods/year) Bi-weekly (26 pay periods/year) Other

Cost of Living How much it costs to meet your basic needs

where you live

COST OF LIVING EXAMPLE Fayetteville, AR vs. San Diego, CA

If you make $30,000 in Fayetteville, to have the same standard of living in San Diego, you would need to make $43,032

Groceries will cost 17% more in San Diego Housing will cost 148% more Utilities will cost 20% more Transportation will cost 26% more Healthcare will cost 22% more

Cost of Living (Comparison) Calculators

Data from CNN Money: www.cgi.money.cnn.com/tools/costofliving/costofliving.html

EMPLOYEE BENEFITS

Non-wage compensation offered to employees Health Insurance Other Insurance Flexible Spending Accounts Retirement Leave Time Other Benefits

On average employee benefits provide a 31% boost to employee compensation

HEALTH INSURANCE Enrollment is often allowed only within 30 days of hire, during

open enrollment periods, or if there is a qualified change in family status Qualified change = change in marital status, change in number of

family members (birth, adoption, child reaches age 26, etc), change in coverage to spouse or dependent

Types of Health Insurance Plans HMO (Health Maintenance Organization) – coverage is limited to

doctors who contract with the HMO, a primary care physician (PCP) oversees your care and refers you to specialists as needed

PPO (Preferred Provider Networks) – allows subscribers to use doctors, hospitals, and providers outside of network for a fee, no PCP required

High Deductible Health Care Plan – high deductible plan with low monthly premiums designed to offer minimal day-to-day coverage but protect you in the event of a catastrophe

Point of Service Plans – combines aspects of HMOs and PPOs; generally requires a PCP to make referrals to other doctors within the network

HEALTH INSURANCE TERMS Health Insurance Premium – the employee’s cost

of the insurance, often withheld from each paycheck

Co-Pay/Co-Insurance – your share of the healthcare cost

Deductible – the amount you have to pay out of pocket before the insurer covers costs

See Sample Health Insurance Chart handout

OTHER INSURANCE Employers may offer other forms of

insuranceVisionDentalDisability – pays a portion of your salary if

you become disabled or unable to work due to injury or illness

Life – Pays an amount to your beneficiary if you die You must choose (and update) your beneficiary

or beneficiaries

CAFETERIA PLAN A Cafeteria Plan is a plan that offers flexible

benefits using pre-tax income Employees choose their benefits from a selection

offered by the employer. The selections can include medical, accident, disability,

vision, dental, group term life insurance, and reimbursement for child care or medical expenses

Once you opt in to a Cafeteria Plan, you may not change until the end of the plan year unless you have certain special circumstances

FLEXIBLE SPENDING ACCOUNTS (FSA)

Designated, pre-tax amount of your gross income is deposited into an account to pay for eligible costs Reduces taxable gross income Subject to maximums set by the IRS You are reimbursed from the account for eligible costs You lose unused amounts in the account at the end of the year

Healthcare FSA Eligible expenses: deductibles, co-pays, over-the-counter

medicines (requires prescription), physical therapy, contacts, braces, etc.

Entire designated annual amount is available January 1 or after the first contribution is made

Dependent Care FSA Reimbursement for daycare or other dependent care expenses

that allow you to go to work Qualified dependents: children under 13, dependents of any age that are

physically or mentally incapable of caring for themselves

RETIREMENT BENEFITS

Defined Benefit Plan – pays an amount based on a pre-determined formula; often called a pension

Defined Contribution Plan – retirement amounts are based on the contributions of employee and employer, and any investment earnings on the account 401(k) – offered by public or private for-profit companies 403(b) – offered by tax-exempt or non-profit organizations

Employer Match – many employers match a portion of the contributions employees make to their accounts

Vesting – your right to the money in your account You are always 100% invested in the money you contribute Employers may have a vesting schedule that outlines how

much of their contributions you own

LEAVE TIME The amount of time off you may take from your job Vacation, Personal, and/or Sick Leave

Some employers divide your time off into these categories Paid Time Off (PTO)

Bank of leave time not allotted to any specific category Unpaid Leave of Absence

Time off that is not paid; employer’s discretion whether allowed, unless it is FMLA

Family Medical Leave (FMLA) Mandates unpaid, job-protected leave for up to 12 weeks a

year to care for a sick or injured family member (spouse, child, or parent) or recover from your own illness or injury

Does not apply to small businesses (less than 50 employees); part-time workers, or for short-term illnesses

OTHER BENEFITS Employers may also offer a variety of other

benefits: Tuition Reimbursement Fitness Center Access Parking Fees Childcare Mileage/Gas Reimbursement Etc.

GETTING PAID Employers use different methods of

paying their employees:Paycheck with a paycheck stub

a physical check with attached information to show deductions; the employee is responsible for handling the check

Direct Deposit Pay is directly deposited into your bank account

Payroll Card A prepaid card that has money electronically loaded

on it, used similar to a debit card There may be fees associated with using a payroll

card

UNDERSTANDING YOUR PAYCHECKIncluded on every paycheck stub:

Pay Period – time period covered by the check (weekly, bi-weekly, twice a month, monthly)

Gross Pay – total amount earned before deductions

Net Pay – amount the employee “takes home” after deductions

Federal Withholding Tax (FT or FWT) – amount withheld to pay federal taxes Based on information provided on the W4

State Withholding Tax (ST or SWT) – amount withheld to pay state taxes

Social Security (SS, SSWT or OASDI) and Medicare (MWT or Med) or FICA Taxes May be combined or listed separately on your pay stub

Year-to-date (YTD) – totals of pay and/or deductions made for the year up to the pay period on the paycheck

UNDERSTANDING YOUR PAYCHECK, CONT’D.Items that may also appear on your check stub:

Local Tax – may apply to employees of certain cities, counties or school districts

Insurance Deductions– amount withheld for medical benefit premiums

Retirement – amount you contribute to your retirement plan

Childcare Assistance/Dependent Care Deduction

Leave Time – vacation hours or sick hours used to date and remaining

Other Voluntary Deductions from your paycheck (parking, donations, gym membership)

Important Notices – a portion of the paycheck may be designated to communicate important information like wage increases or tax information

UNEMPLOYMENT BENEFITS Payment from the government to unemployed people

The amounts of previous earnings and time worked (base period) are used to determine the benefit amount

The average weekly benefit is 36% of your previous weekly wage

Must register and document seeking work

Previously part-time, temporary, and self-employed workers do not qualify

Generally, the worker must be unemployed through no fault of his/her own

Register with the state unemployment agency, ex: Arkansas Department of Workforce Service

COBRA HEALTH INSURANCE Provides certain (former) employees and dependents

the right to temporary continuation of health insurance coverage at group rates. Must have been covered under the group health

plan of an employer with 20 or more employees the day before the qualifying event

The qualifying event determines who the qualified beneficiaries are

More expensive than the insurance for active employees since the employer will not be paying part of the premium.

You, spouse, and dependent children can receive COBRA benefits for 18 months if employment is terminated

SELF-EMPLOYMENT

Speak to an attorney and an accountant regarding the many ways you might structure your business and the many legal and financial considerations to take into account.

Remember that as a self-employed person, you will need to pay employment taxes to the IRS at tax time.

You will also want to consider health insurance coverage and retirement plans.

NEGOTIATING SALARY AND BENEFITS FOR YOUR FIRST JOB

Do not immediately accept: ask for time to consider the offer

Consider the entire job package – not just the wages/salary Think about responsibilities, benefits, perks, hours, work

environment, flexibility, and other preferences you may have

Research the typical pay for similar jobs (remember cost of living adjustments) and your level of education and experience

Try not to discuss salary until you have an offer; if pressed, say you are flexible or provide a range, not a specific amount

Even if you are not able to get the salary you wanted, you can negotiate some benefits, such as signing bonus, education, vacation time, flexibility, etc.

Keep your goals reasonable: Remember a new graduate will not have the same negotiating power as someone who has been working in the field for many years

BACKGROUND CHECKS References & Credentials Check

Education, Employment, Licenses, Military Service Record, Workers Compensation Claims

Criminal Records Check County, State, and Federal Criminal Record Searches,

Civil Record Search, Sex Offender Registry, Fingerprinting

Identity and Credit Check Confirm identity and right to work in this country Provide insight into personal responsibility & reliability Can check up to 10 years into your past

Driving Records Check If required to operate a vehicle for business purposes Can check the past 3-7 years

Physical/Substance Abuse Tests

Questions??

BEFORE YOU GO…

Please complete and submit the evaluation form

PowerPoint presentation and handouts will be posted on our website with all other Budgeting For College Seminars

THANK YOU! Contact Information:

Office of Financial Aid; Andrea, Gary, and Melissa Campus location: 114 Silas Hunt Hall Phone: 479-575-3806 Fax: 479-575-7790 Website: http://finaid.uark.edu/ And find us on Facebook at University of

Arkansas Financial Aid!