Salary + Benefits

October 9, 2006 6:31 PM

I currently make $800/week ($41,600/year) as a freelancer where I work. I've worked there for over a year and am now being offered a chance to work there fulltime with benefits. The benefits package is very generous but when it came time to discuss salary, they offered me $36,000/year, the rationale being that the benefits more than make up for the lower pay.

However, benefits don't pay the rent or buy me food so I said no and we've begun the negotiation process. This is my first job out of college and frankly, I expected to be paid more than I was currently making as a freelancer so I was quite shocked when they made the offer. Is it normal for something like this to happen? Is it unreasonable for me to expect to get paid the same amount while also getting benefits?

posted by blim8183 to work & money (42 comments total)

That sounds about right - work out what it would cost you to provide the same benefits to yourself and that will tell you exactly where you stand. yes, it is unreasonable to expect the same rate of pay as an employee that you got as a contractor.
posted by dg at 6:33 PM on October 9, 2006

As a freelancer you also have to pay all of the social security tax. As an employee, you only have to pay a portion and the employer pays a portion. You also have less risk about where your next check is coming from, so you should always expect to make less as an employee.
posted by willnot at 6:36 PM on October 9, 2006

I think it's normal that salaried employees make less actual cash than freelancers; I know, for example, that per diem nurses make a LOT more money per hour than staff nurses.

That said, there's no reason for you not to negotiate and see what else they'll give you; maybe you'll get another grand or two a year. But I wouldn't expect that they'll pay you as much as they were paying you as a freelancer and give you benefits, too.
posted by jesourie at 6:36 PM on October 9, 2006

Willnot took the words out of my mouth. Did you file your taxes as a consultant last year (1066C???)? Did you pay for your own health care? I bet that those two things cost more than $5k.

Take the job.
posted by k8t at 6:37 PM on October 9, 2006

Absolutely unreasonable to expect the same pay. Companies are typically willing to pay contractors a great deal more money than a hired on employee. This is typically because of a number of factors, including dramatically less administrative overhead, fewer HR concerns, no benefits, no taxes and because they don't have to maintain the same level of commitment to using your services. If you're an employee, they better be getting their money's worth.

Some companies put aside up to 30% for benefits for an employee. It can easily hit this when you factor in health insurance and dental and 401ks, and other elements.

I wouldn't say $36,4 is particularly "fair", depending on the work that you do, but it's a relatively appropriate drop from your freelancer price. If you no longer have to pay for your health care and a few other things included in benefits, and you're paying more than $100 a month on healthcare, there's already a significant portion.

Also, consider that you're paying, effectively, for a certain degree of job security. In some scenarios, that's less important than in others, but it can also dictate how your payment is received and how your credit is affected. (Freelancers who are "self-employed" look less desirable to lenders than employees of companies who direct deposit consistently every two weeks.)

Negotiate a bit, but be smart, and ask about growth and promotion opportunities.
posted by disillusioned at 6:38 PM on October 9, 2006

Also, as an employee, the company now covers 7.5% of your FICA tax, which you were likely paying in the form of a 15% self-employment tax. That's no small potatoes either, and considered part of the "benefits."
posted by disillusioned at 6:40 PM on October 9, 2006

Of course it depends on where you live and what you eat, but...$36,000 a year seems like it should be more than enough to keep the rent/utilities paid, gas in the car, and food in the refrigerator. If one of your benefits is health insurance, you're doing even better.
posted by limeonaire at 6:45 PM on October 9, 2006

Thanks for all the feedback so quickly so far. I guess I can elaborate a little more. Up until this summer I was covered under my school's health insurance. Since graduating, I've been without health insurance and that's my only major reason for wanting the fulltime position. Job security either way isn't a huge issue since we're somewhat understaffed as it is and I'm pretty much the only person who knows how to do all the things that I now do (duties which our department is completely based around so).

My major concern is that I live in NYC and my rent is $1400/month. $36,000 comes out to $3000/month. My rent is nearly half my monthly wages BEFORE taxes. I realize that this is a position that I put myself in so I have no one to blame but myself, nevertheless, it's something I need to think about.
posted by blim8183 at 6:45 PM on October 9, 2006

Just for reference, the FICA tax alone amounts to $3120, so the $36000 they're offering is actually equal to $39120 you're making now. Are the benefits worth $1880? I assume we're talking health insurance here, and vacations and such, and I have no doubt that the benefits are worth that much and quite a bit more. See what they offer next, and take it. If they don't counter-offer, then take the $36000. Really.
posted by incessant at 6:45 PM on October 9, 2006

It's still insulting. As a boss-type, I would offer at least a matching salary, if not a little bump. You are completely right to bristle, and negotiate. Best of luck.
posted by TonyRobots at 6:46 PM on October 9, 2006

Negotiate, but at the end of the day take it. Use it as a stepping stone to something better; you don't have to view it as the job for your next 45 years.
posted by oxford blue at 6:49 PM on October 9, 2006

Okay, all this information about my employer paying part of the taxes I currently pay on my own is very enlightening. I had no idea about that. Thanks again.
posted by blim8183 at 6:50 PM on October 9, 2006

Rough numbers to get you started:

The difference between contractor and EE is about 5100/year.

Are the benefits worth 5100/yr?

I'm guessing you're young. Find out how much it would cost to get good medical/dental/vision insurance. If you're single, it'll be dirt cheap for the cadillac plan (maybe 2K/year maximum). If you've got a family that you have to insure.... be an employee.

Next, consider that it's hard to get individual dental/vision that are good.

As mentioned above, there's the taxes. Perhaps you've got to pay an extra 7% (roughly) on your earnings of 41K which is roughly 2870.

Employee status is not looking too bad. Consider the "political" ramifications of declining their offer if you care about that stuff.

However, you've got to factor in deductions/expenses as a contractor. If you're getting paid 41600/year, you might not report that much (and pay self-employment taxes on that much).

You gotta run the numbers, but just be aware that benefits are expensive for employers. Find out if you've got to pay any out-of-pocket for benefits.

Your objective is to have the strongest financial position -- not just get money coming through the door for rent and food.
posted by powpow at 6:50 PM on October 9, 2006

You don't mention what the benefits you're being offered are, but you're being offered a raise. If your benefits include access to decent health care, you're being offered a fairly generous raise.

Do you do your own taxes? If so, you should do a dry run with the new figures; if not, pass the proposal by your accoutant.
posted by ikkyu2 at 6:50 PM on October 9, 2006

After my post here, I got offered (without negotiating) what I was making as a consultant for them + 25%. And yeah, on top of that I got benefits and whatnot. Ie:

Consultant Hourly Rate * 40 hours/week * 50 weeks/year * 1.25 = Annual Salary I Was Offered, Not Counting Benefits

(P.S. Sounds like you have a good bargaining position, as the only one who can do what you do now.)
posted by ruff at 6:53 PM on October 9, 2006

It's probably no secret now if anybody I work with stumbles across this, the job is with the Online Media Department of American Express Publishing and the benefits are very generous. The benefits, include vision, health, and dental care. 23 paid days off, 401k, they'll pay for classes I take (up to $5000/year), gym membership (up to $500/year), and a lot more stuff I'm still reading about.

The "political ramifications" are slight considering that I've already turned down a full time offer in the past, instead opting for an raise to my hourly wage and the prospect of a more interesting position opening up.

After reading this I feel kinda silly having been so upset with the offer. Yes, I'm young and foolish : /

Oh well, since we've already started negotiating, I'll see how much I can get but it looks like I'll be accepting the job.

Thanks agian to everyone that replied.
posted by blim8183 at 6:58 PM on October 9, 2006

And yeah, to shore up your bargaining power, I like ikkyu2's idea. Pay an accountant to run tax numbers (including ALL the deductions you could possibly reasonably take, which may come out to quite a bit) and give your employer some solid figures to prove this would be a loss in income for you. Also, look up what other people receive for doing your job. Also, you could even start trying to get job offers from some of those places. Good luck!

(Rent shouldn't be half your income, btw. One-third your income is the target most government agencies recommend. Though yeah, in NYC, it's not unusual for it to be more.)
posted by ruff at 6:59 PM on October 9, 2006

WOW, blim8183, those benefits are GREAT. Take them- or give them my resume!

Kidding, boss; I love my job!
posted by ThePinkSuperhero at 7:07 PM on October 9, 2006 [1 favorite]

And : My major concern is that I live in NYC and my rent is $1400/month.

Where do you live? That's a lot. Ever thought of moving to a cheaper neighborhood?
posted by ThePinkSuperhero at 7:09 PM on October 9, 2006 [1 favorite]

I am thinking about it now :P
posted by blim8183 at 7:12 PM on October 9, 2006

Don't forget to check if your 401(k) offers matching contributions and what the terms are (i.e., a delay of a few months before the matching funds turn on isn't uncommon.)

You want to take advantage of the full 401(k) match, if any. Matching 401(k) contributions should be looked at it as salary you're being given a chance to opt out of (and, of course, you should definitely decide not to opt out!)

I'm young and foolish

I don't agree. You came to a pretty good place for advice :)
posted by ikkyu2 at 7:16 PM on October 9, 2006

if you don't take it, I will!
posted by mcsweetie at 7:39 PM on October 9, 2006

I once heard that the money you make as a freelancer should be about 20% more than what you would make as a full-time employee with benefits (although I have no idea what that was based on).

By that rule of thumb you are actually being ripped off as a freelancer!
posted by maggiemaggie at 8:39 PM on October 9, 2006

Put me down for "take the job".

Of course, if you can negotiate for a higher salary, you should. That applies to anyone.

But your surprise is because you've got the math wrong, that's all.

Are you going to get, say, two weeks' holiday a year as a fulltimer?

Assuming you are, your actual rate of pay is actually 2/52 greater than it looks on paper, right? Because there are two weeks where you get paid but don't work. Or you could think of it like they're paying you 54 times a year instead of 52.

As maggiemaggie says, there's about a fifteen to twenty per cent overhead being paid by the employer for you to be fulltime. You just don't see it in cash.
posted by AmbroseChapel at 10:11 PM on October 9, 2006

The idea, mentioned above, that an individual could get medical / dental / vision coverage for 2k a year (even if they are young, in good health etc...) is complete bulloshit. Do not undervalue good health insurance! I would expect it would be about three times that (maybe as much as six times) for anything but disaster-only coverage with a massive deduction on everything.
posted by Riemann at 10:15 PM on October 9, 2006

This seems like a pretty fair job offer given the benefits. Don't undervalue paid vacation! It really sucked never being able to take time off when I was freelancing.

Just for the record, while it's true that your employer is paying "the other half" of FICA for you, when you were freelancing, the half you paid was a deductible business expense. So really you likely ended up paying something like 12% rather than the 15% that's the nominal SS rate. So by taking the job you are only "saving" about 5% you'd have to pay rather than 7.5%.
posted by kindall at 10:39 PM on October 9, 2006

I'm rereading everything here and realizing that you've only been in this job for a few months -- do I have that right? And this is basically your first job since graduating college? Have you worked freelance before? If not, grab a chair and let's have a heart-to-heart. ikkyu2, could you put on some tea?

Please tell me you're putting money aside for taxes. Pleasepleaseplease. Although living in New York and pulling down 40K a year and shelling out 1400 for rent a month, I'm not entirely sure how you could. Just know, spitball come tax time you'll probably have to fork over around five, six, maybe seven grand depending on how many deductions you take and how creative and aggressive your accountant is (you do have an accountant, right?), and that's just federal. So start saving for that now.

Oh, wait -- if you just started working there this summer, then you'll be paying far less. Back when I was in your position, I just stashed a third of whatever I made in my tax savings account. I always was left over with a little, but the interest was decent. So that's another thing that being an employee gets you -- no-brainer taxes, never seeing the money that's gotta go to the government anyway. You might not think that's a big deal now, and for some people it isn't, but for others (plenty others) the system of withholding is priceless.

Kindall, I'm totally confused -- FICA is a deductible expense? I gotta go look at my taxes from last year. It's been ages since I did them myself. I'm gonna guess that blim, your deductions probably aren't much, if they reach the minimum at all, so I'm not sure that FICA is deductible will have much impact, especially at your income level.
posted by incessant at 12:01 AM on October 10, 2006 [1 favorite]

Sweet mamma jamma! 23 days vacation for your first job out of college??? TAKE THAT JOB! That's a full month off every year, for the love of Moses! That alone is a TREMENDOUS benefit, nevermind the rest of the kickass stuff they're offering you. :)
posted by antifuse at 2:30 AM on October 10, 2006

One negotiating factor is the 'known quantity'. They have seen you and your work and your work ethic for a year now. You should be able to use that as a bargaining point. The devil you know should be worth at least $40k/year plus bennies.

In NYC could/should you be making a lot more than that? Do some salary searches.
posted by Gungho at 4:21 AM on October 10, 2006

antifuse: that much time off is less than everyone gets in Germany. Probably the UK, too, as well as France. Likely most all the western European nations. Some countries recognize that its citizens are not on earth to be worked to death. What's up with the "Land of the Free" on that one? (I'm an American too)

Blim8183: I suspect part of the problem here may be that you were under-paid as a freelancer. It happens to fresh young things out of school.
posted by Goofyy at 4:32 AM on October 10, 2006

goofyy: I'm well aware of that... here in Ireland, it's 21 days minimum holiday per year. But 23 days is a STELLAR package for somebody in the States (or Canada, for that matter, where I'm from) coming straight out of school.
posted by antifuse at 5:19 AM on October 10, 2006

I agree with pretty much everyone upthread but wanted to throw in an extra caveat. Being a *real* AE employee is going to get you a lot more mileage when it comes to obtaining your future jobs. You could be offered better opportunities because of where you worked and your status, than if you just stayed as a contractor. That could be worth a significant amount of money later on down the road. I don't mean any offense to freelancers, contractors, etc. I've just seen interviews and resume reviews where people tend to give more weight to folks that were on the official payroll of companies.

Since you've been there a while, perhaps you could negotiate something where you start at 36, and then in six months (or whatever), you and the supervisor review your progress. If you've hit X goals, you get a Y% raise.
posted by ml98tu at 6:37 AM on October 10, 2006

incessant: my rent is partly being subsidized by my parents who were not happy with my initial decision to move to East Harlem and as a result offered me some money if I'd live somewhere "safer." I've been working here for about 17 months now, first as an intern then a part-time freelancer while I was in school then a full-time freelancer after graduating. In regards to taxes, I received a hefty sum in return last year and am expecting the same this year.

Lots of people are saying I should see an accountant. Being 23 years old this had never even occured to me but I guess it makes complete sense since I'm not trying to become financially independent. What's the best way of going about getting one?
posted by blim8183 at 6:39 AM on October 10, 2006

edit to above post: *now trying
posted by blim8183 at 6:40 AM on October 10, 2006

Another factor that has not entered this discussion yet is whether you are a "captive" freelancer to AmExPub—that is, whether you have any other clients or are in a position to have them.

If you are, you can use that as a bargaining chip. If you make $40K off of these guys, but still have reasonable reserve capacity to handle another, say, $10K from other clients, you can bring that up as part of the opportunity/cost equation of going in-house. And you don't need to say whether you actually have other clients, simply that you'd be forgoing up to $10K in potential income (since all future income is "potential" when you're a freelancer).

If you are a captive freelancer, then none of this applies, of course.
posted by adamrice at 8:25 AM on October 10, 2006

Kindall, I'm totally confused -- FICA is a deductible expense?

Yeah, the employer's half of FICA (and all other taxes you pay for your business, other than your income) are deductible business expenses.

You'll write off things like sales taxes on Schedule C. However, on your form 1040 there is a blank for "half of self-employment tax from Schedule SE." That's what deducts the employer's half of FICA.
posted by kindall at 8:34 AM on October 10, 2006

Sorry, when I said "other than income" I meant other than Federal income tax. State and local income tax is a deductible expense IIRC. (I live in an area without either state or local income tax so am not 100% sure on this, but I'm sure someone else will correct me.)
posted by kindall at 9:00 AM on October 10, 2006

Yup, state and local are deductible, that much I remember. Blim, this is why I have an accountant -- I've been taking deductions (like my FICA tax) without even knowing how to spell them. Ask around for an accountant, see who other people use, or those in the thread who live in NYC can give you referrals. It's absolutely worth it from where I stand. You've got time until April 15th, so no rush on finding someone -- start in earnest after the first of the year, if not sooner. When you're an employee, it's slightly less worthwhile, especially if you're not dealing with a lot of investments and different accounts and so on and so forth (which I assume you're not), and you can just do the 1040EZ, but as a freelancer, it's priceless. I did my own taxes the first couple years, and then I went the accountant route and saw my taxes drop in half. And my guy doesn't even do the illegal stuff.
posted by incessant at 10:16 AM on October 10, 2006

What's the best way of going about getting (an accountant)?

Ask friends for recommendations; or maybe your folks' accountant would take you on. For instance, I used to see Ganga Mukkavilli CPA, down on Murray Hill, but I was a medical resident at the time; most of his clients are physicians and he's quite used to the ins and outs of a physician's tax return.
posted by ikkyu2 at 11:27 AM on October 10, 2006

You sound young.

If you're a woman*, you may have to take this offer.

If you're a man, you may be able to get better health insurance for less on your own than the difference. After you count that off, if they count any 401k matching, that would have to bring up the difference.

Also look at high deductable medical plans: You're young, you don't get sick much.

Looking up these numbers alone gives you an arguing point.

Make sure you accurately count up your time. Many people who have demanding work schedules make more money hourly then they do when "earning" vacation and sick days.

Ask for other benefits, such as travel reimbursement, company stock, paid friday lunches, (guarenteed in writing) company paid training/degrees, etc.

Also agree to take on new repsonsibility if that's what's required to meet a real salary you can live with.

--Michael

*I'm not trying to sound sexist here, but the different costs of health insurance makes this necessary.
posted by gte910h at 3:17 PM on October 10, 2006

My boss made an offer yesterday that was significantly higher than the first one and a little higher than what I'm being paid now as a freelancer. Needless to say, I've accepted it. Thanks again to everyone for all their help and advice.
posted by blim8183 at 10:33 AM on October 12, 2006

Woohoo, happy ending!
posted by ThePinkSuperhero at 4:53 PM on October 12, 2006 [1 favorite]