Give and take
Adding up the cost of non-wage benefits
Our lives and our politics are dominated by money, yet our thinking about the most basic number of them all – how much we earn – doesn’t add up. You’d think that people would at least know how much they are paid on the job, but most people underestimate how much they are compensated by their employer by counting only the compensation that shows up on their paychecks.
And what you see is less than what you get. For example, the employer pops for certain legally required benefits, such as state and federal unemployment insurance and workers’ compensation, which most people never need, but which they are mighty glad to have when they do. Then there is the deduction taken from each paycheck for the mysterious FICA tax, which is imposed on most people’s earnings under the Federal Insurance Contributions Act and constitutes a working person’s contribution to the support of Social Security and Medicare. In 2010, the Social Security tax for a happy servant of property who was paid $106,800 a year or less was 6.2 percent of his gross wages; the Medicare part costs that employee a further 1.45 percent of his wages, and applies to every dollar earned.
Everybody knows that, and nearly everybody gripes about it. What surprisingly few employees also know is that the actual combined FICA rate is 15.3 percent, and that they pay only half of it. The other half is paid into their account by their employer. That sweetens the pot of someone grossing $40 grand a year by more than 3,000 bucks.
Most employer-provided benefits, however, are not required, but are offered voluntarily as hiring and retention incentives. One of these is vacation days, sick days, personal days and paid holidays – perks that return pay for no work but which are commonly mistaken as due by right. Others include free on-site parking, free filtered water from a dispenser at the end of the hall and free personal use of telephones and office computers to chat on Facebook and watch cute cat videos.
The amount of an employer’s contributions toward some kind of retirement plan (in the form of cash or stock or a share of profits) vary depending on whether the job is in government or the private sector, and whether the retirement is a defined-benefit plan or a defined-contribution plan. In 2010 those contributions ranged from less than 1 percent to more than 7 percent of wages.
The employer contribution toward health care costs in late 2010 varied too, reports the Bureau of Labor Statistics, from the equivalent of 7.5 percent of wages for private sector employees to 1.6 percent for those in the public sector. Another benefit (and one that is too seldom counted) is the assistance that an employee enjoys from employer-paid clerical staff who do most of the paperwork required by retirement and health insurance plans and who spare the employee the hassle of making and tracking her own withholding payments.
It adds up. In general an employee receives non-wage benefits worth 25 to 40 percent of his base pay. (The national average, sayeth the Bureau of Labor Statistics, is 30 percent.) Someone used to thinking that she earns $50,000, in other words, actually gets the equivalent of $65,000 in cash and benefits – and she pays income taxes on only the cash bit.
The alert reader might hear in these lines the complaint of a self-employed and thus under-compensated writer who enjoys being his own employer – and pays through the nose for the privilege. Fair enough. But the system of work-related benefits has rather bigger things wrong with it than my exclusion from it. Some legally required benefit programs, such as workers’ comp, are not well run. The cost of non-wage benefits can be a brake on business hiring and depress wages; in recent years the cost of total compensation for U.S. workers has risen as a share of national income but wages have declined, as employers trim wage outlays to cover rising non-wage costs.
We need a debate about which benefits are appropriate for employers to pay for and which are not. Job-related benefits like workers’ comp certainly are, but I have yet to hear a convincing case why the quality of one’s basic health care ought to vary with the quality of one’s job. While we’re at it, we might also talk about both the equity and the fiscal soundness of the large benefit flowing to the middle class in the form of untaxed health insurance contributions. Any such debate, however, needs to be based on facts, beginning with a clearer understanding by the public of not only what their employers “take,” but also what they give.
Contact James Krohe Jr. at email@example.com.