A Beginners Guide To Understanding Workplace Benefits
Your job might be compensating you a lot more than just your salary
Here’s a simple question most people can’t answer:
How much do you get paid?
If you answered your annual salary or hourly wage, you are (probably) wrong.
The amount of money you can extract from your employer goes well beyond your base pay. A report from the U.S. Department of Labor found that salaries and wages only accounted for 70% of the average worker’s total compensation.
The other 30% comes from employee benefits.
Translation: If you are not maximizing employee benefits, you are leaving money on the table.
You wouldn’t turn down a raise in your salary, but ignoring your employee benefits amounts to the same thing.
In this edition of Dollars & Decades, I provide a crash course on common workplace benefits available to U.S. & Canadian workers, how those benefits complement government programs, and provide some links for further reading.
The most important thing to remember is that if you want to learn more about your specific benefits, the #1 thing you can do is talk to your HR department to learn about the specifics of what your employer offers.
(Note: Most of the time, I go deep on a particular topic in finance; today I am going wide on a ton of topics. If there’s any topic you think deserves my typical deep dive analysis, let me know in the comments.)
Common Workplace Benefits (U.S Workers)
Health Insurance:
Provides coverage for medical, dental, and vision expenses.
Interaction with Government: Employer-provided insurance may affect eligibility for Medicaid or ACA subsidies.
For more information, visit the U.S. government website on benefits.
Retirement Plans (401(k), 403(b)):
401(k) Plans allow pre-tax savings for retirement with employer matching.
Benefits include tax-deferred growth; drawbacks involve penalties for early withdrawal.
Interaction with Government: Contributions lower taxable income, influencing eligibility for some government benefits.
For more information, visit the National Council on Aging.
Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA):
FSAs let employees set aside pre-tax dollars for specific expenses.
HSAs are savings accounts for high-deductible health plans with tax advantages.
Interaction with Government: Contributions can affect taxable income and eligibility for certain benefits.
For more information, read this post from Fidelity.
Life and Disability Insurance:
Life Insurance:
Provides financial support to beneficiaries (usually family members) in the event of the policyholder's death.
Premiums depend on factors like age, health, and coverage amount. The policy pays a death benefit to beneficiaries upon the policyholder’s death.
Disability Insurance:
Offers income protection to individuals who are unable to work due to a disability.
Short-term disability insurance covers a brief absence from work, while long-term disability insurance covers longer periods.
Typically provides a percentage of the individual's salary during the disability period. Coverage terms vary based on the policy.
For more detailed information, the U.S. Department of Labor provides comprehensive resources on life and disability insurance as part of employee benefits.
Employee Assistance Programs (EAP):
EAPs are workplace programs designed to help employees deal with personal problems that might adversely impact their work performance, health, and well-being.
Services often include counseling, stress management, assistance with work-life balance, substance abuse programs, and mental health resources.
The U.S. Office of Personnel Management provides detailed information on EAPs.
Stock Options and Employee Stock Purchase Plans (ESPP):
ESPPs Allow employees to purchase company stock, usually at a discounted price, through payroll deductions.
ESPPs often have specific enrollment periods and set times when stock is purchased on behalf of the employees.
The discount on stock purchased through ESPPs can be taxed as ordinary income or capital gains, depending on the holding period.
The U.S. Securities and Exchange Commission provides additional information ESPPs
Here are a few quick tips to maximize employee benefits
Understand your benefits and how they interact with government programs.
Regularly review your needs and available benefits.
Maximize employer contributions in retirement plans.
Be aware of tax implications.
Seek professional advice for personalized guidance.
Understanding Key Government Programs (U.S Workers)
Social Security:
Purpose: Provides retirement, disability, and survivor benefits.
Funding: Funded through payroll taxes under the Federal Insurance Contributions Act (FICA).
Benefits: Based on the individual's earnings record and the age at which they start receiving benefits.
Considerations: Full retirement age varies based on birth year, and benefits can be reduced if taken early.
For more information visit Social Security Administatrion.
Medicare:
Purpose: Health insurance program for people 65 and older and some younger individuals with disabilities.
Funding: Funded through payroll taxes and monthly premiums for certain parts of the program.
Benefits: Includes Part A (hospital insurance), Part B (medical insurance), Part D (prescription drug coverage), and Medicare Advantage Plans (Part C).
For more information, visit the Medicare website.
Medicaid:
Purpose: Provides health coverage to eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities.
Funding: Jointly funded by the federal government and states.
Eligibility: Based on income and varies by state.
For more information, visit the Medicaid website.
Unemployment Insurance:
Purpose: Provides temporary financial assistance to unemployed workers who lost their job through no fault of their own.
Funding: Funded by employers through payroll taxes.
Benefits: Weekly payments to help with living expenses while seeking new employment.
For more information on filing for Unemployment Inusrance, visit the Department of Labor website.
Veterans' Benefits:
Purpose: Offers various benefits to military veterans, including healthcare, disability compensation, and educational benefits.
Funding: Funded by the federal government.
Eligibility: Based on service history and discharge status.
For more information on Vereran’s Benefits, visit the Department of Veterans Affairs website.
Common Workplace Benefits (Canadian Workers)
Health Insurance:
Overview: Often includes medical, dental, and vision coverage.
Enrollment: Typically during an annual open enrollment period or upon qualifying life events.
Considerations: Plans may vary in terms of coverage, deductibles, and co-pays.
For more information on public & private health insurance in Canada, visit the Government of Canada’s website.
Workplace & Indiviual Retirement Savings Plans:
RRSP (Registered Retirement Savings Plan): A retirement savings plan that defers tax until withdrawal. Contributions can be deducted from taxable income. For more information visit the Government of Canada’s website.
TFSA (Tax-Free Savings Account): Allows savings or investments to grow tax-free. Contributions cannot be deducted from taxable income, but all investment gains can be withdrawn tax free. For more information, visit the Canadian Revenue Agency’s website.
Pension Plans: Defined Benefit or Defined Contribution plans sponsored by employers.
Disability Insurance:
Short-Term and Long-Term: Provides income replacement for employees unable to work due to disability.
For more information on the complex details of disability insurance, visit the Government of Canada’s website.
Life Insurance:
Coverage: Typically a multiple of the annual salary. Can include term or whole life insurance.
For more information Visit the Financial Consumer Agency of Canada.
Government Programs in Canada
Canada Pension Plan (CPP):
Purpose: Provides retirement, income as well as disability, survivor, and children's benefits.
Funding: Funded through mandatory contributions by employees, employers, and self-employed individuals.
Benefits: Depends on how much and for how long one has contributed.
For additional information on the CPP, visit the Government of Canada’s website.
Old Age Security (OAS):
Purpose: A monthly payment available to seniors aged 65 and older.
Funding: Funded through general tax revenues.
Benefits: Based on the number of years lived in Canada, after the age of 18.
For more information on OAS, read this overview.
Employment Insurance (EI):
Purpose: Provides temporary financial assistance for unemployed Canadians while they look for work or upgrade their skills.
Funding: Funded through premiums paid by employees and employers.
Benefits: Includes regular benefits, sickness, maternity and parental benefits, compassionate care, and family caregiver benefits.
For more information on EI benefits, read this overview.
Quebec Pension Plan (QPP):
Similar to CPP: For residents of Quebec.
Benefits: Retirement, disability, survivor, and children's benefits.
Workers' Compensation:
Purpose: Provides compensation and support to workers injured on the job.
Provincial Programs: Each province and territory has its own workers' compensation board.
For more information, visit the Government of Quebec’s website.
Provincial Health Care Plans:
Coverage: Varies by province, generally covering necessary medical services.
Additional Coverage: For services not covered by provincial plans, supplemental health insurance can be purchased or provided by employers.
Child Benefits:
Canada Child Benefit (CCB): A tax-free monthly payment made to eligible families to help with the cost of raising children.
For more information, read this overview from the Canadian Revenue Agency.
This is by no means an “all you need to know” post. This is very much a “101” on workplace and government benefit programs. If there’s a topic not covered here—or a topic you’d like to see a deep dive on—let me know in the comments.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.
Sounds great in principle, provided one has the time to be utilising these perks and is employed by an organisation generous with benefits.
Ben, thanks for reminding us to talk to the HR department and take what's ours :)