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In this podcast, we’re exploring Lesson 4: Pay. It’s More than a Salary! Obviously, this topic fits well within our Unit 1 theme Earning an Income. In this lesson, we explore compensation. It may come as a surprise to students that compensation is made up of more than a salary. In this lesson, students learn that compensation includes salary and those all-important employee benefits! This lesson begins on page 58 of the Instructor’s Guide. Let’s turn to it now.
There’s a lot of content covered in this lesson. Take a look at the Pacing Guide and you can see that the Presentation of Content is segmented into two days. None of the content in this lesson is hard to understand but, because I thought that students could become a bit overwhelmed by so much information, I segmented the Presentation of Content. On Day 1, we cover compensation: what it is, and that it includes salary and benefits. We also cover the employee benefits that are required by law, and typical or popular employee benefits offered by employers at their discretion. The second day of Presentation of Content, we cover other less common discretionary employee benefits and independent contracting.
Moving down page 58 to Supplemental Resources. Many young job seekers overlook or may have no appreciation for the actual monetary value of employee benefits. They don’t monetize benefits when determining the quality of an offer of employment. One of our goals in this lesson is to turn that around, so that students know to consider the value of any potential employee benefits when career planning and job searching. The total Employee’s Compensation Calculator will help you demonstrate for students the actual monetary value of employee benefits.
If you have time, another thing you can do to engage students more deeply in this topic of employee benefits, is invite your district’s HR specialist into the classroom to talk to your students about employee benefits. You have a lot of resources for this lesson right under your nose in your district office. I’m sure they be willing to share their expertise with students.
The other instructional resource mentioned at the top of page 59 is salary.com’s Cost of Living Wizard. This is a good website that enables the comparison of cost of living and salary differentials between major cities in the U.S. For example, say you lived in or worked in Battle Creek, Michigan making $50,000 a year and are considering accepting a job in L.A. This website allows you to enter your Battle Creek salary info and it’ll tell you how much more you need to make in salary at the L.A. job to maintain your Battle Creek standard of living. So that may be a fun website for students to explore both for the purpose of comparing costs of living between cities and for understanding the very concept that salary dollars stretch a lot farther in some areas of the country. In this case, the cost of living in LA is 35% higher than Battle Creek so you’d need to a salary of $67,647 to keep your Michigan standard of living in L.A.
Our online resource for this lesson is wisebread.com. This is a good website with frugal living tips that students could use, particularly as they head off to college.
Continuing on page 59 is What Does That Mean? The world of employee benefits has a lingo all on its own. As students move on to a career path and up into their careers, it will really helps them to have a working knowledge of the terms human relations (HR) people use because it helps them make important decisions about employee benefits. None of the vocabulary terms are difficult to understand. Students will see them repeated a lot during this course such as the term 401k. That is repeated throughout the course.
Let’s move on to Gaining Attention on page 60. We start by engaging students in discussion asking the question: What are they most looking forward to when they finally finish school and start a career? Undoubtedly, many will say they are looking forward to getting a regular paycheck.
We’d begin Presentation of Content with an introduction to the term “compensation package”. Although salary — what salary a job pays — is foremost in a jobseeker’s mind when job searching, students should be encouraged to widen their perception of “pay” to include salary and employee benefits, and this is what it meant by the employer’s compensation package.
We start the discussion about salary on page 61. Students should know that there are different uses of the word salary. Base salary, which is what an employee is paid before any incentives are added such as overtime or commission. Gross salary is the whole ball of wax: what an employee earns before any deductions are taken out of their pay. We’ll explain more about deductions in a next lesson and net salary which is what the employee is left with after all deductions are taken. In other words, it’s the number on their paycheck which is also called take home pay.
A COLA, C-O-L-A, is a term that often goes misunderstood, but it’s really simple. It’s an adjustment to the base salary if and when there’s an increase in the Consumer Price Index. It’s also called a cost-of-living-adjustment which is, hence the C-O-L-A. The point is that, in the event the CPI rises and consumer stuff becomes more expensive, the employee’s base salary is increased to compensate for the increase in so that the employee’s salary doesn’t lose value.
Employee benefits make up the other part of a compensation package. Employee benefits are called benefits for a reason. They’re very beneficial to employees. The chart starting on page 61 explains four of the big benefits of benefits. You can read about those, but I just wanted to say something about one of the benefits: the reduction in taxes. Many of the benefits that employees pay for are paid before before taxes are deducted from a paycheck. This has the effect of reducing the employee’s taxable income. This is what is meant by pre-tax dollars. The ability to pay for benefits in pre-tax dollars is a big benefit of benefits. Students may not have an appreciation for this particular benefit yet, but as they get older and they make more money and they have to pay more and more and more of their income in federal taxes, they will learn to love the fact that they can reduce their tax liability through employee benefits.
In addition to being able to reduce tax liability, employee benefits provide a means of getting health insurance at a lower cost and enable an employee to build wealth, for example, through the employers’ retirement plan. We’ll look more closely at both of those in a later lesson. One of the other things I wanted to stress here is that, considered individually, none of the benefits are terribly exciting or meaningful to students because they’re not yet out in the real world earning an income. They’ll have to take our word for it, the cumulative effect of employee benefits has a really big long-term impact on improving their lives and building wealth. So when career planning or job searching, it’s important that they not overlook the employee benefits, that they examine the entire compensation as carefully as they do the salary.
Moving on to page 62, let’s take a look at the benefits that are required by law so will be included in all employee compensation packages. These aren’t complicated and you can go ahead and read about them. We’re going to explore Social Security more in depth in a later lesson, but at this point — for this lesson — students should be aware that Social Security is a “benefit” established under FICA (which is a vocabulary word) Federal Insurance Compensation Program. This is what is called an entitlement program. Employees pay for this benefit through a Social Security tax, but they are not receiving the benefit of it this benefit until they are well over 60 years old. The dollars deducted from the employee’s paycheck to pay the Social Security tax are paid out to current recipients of Social Security. Their money is not put into an account specially set aside for them.
Other employee benefits required by law are Workers’ Compensation insurance, unemployment insurance, Family Medical Leave, time off for jury duty and voting, and in a few states, disability insurance. You can read all about those on pages 62 and 63.
A word about health insurance, whether or not health insurance is a mandatory employee benefit is an unsettled issue right now. Under ObamaCare, companies with over 50 employees were required to provide healthcare insurance, but at this point the Affordable Care Act AKA ObamaCare is up in the air and congress is trying to come up with a new plan, so this is a moving target and that was hard to address in this program. Students should be aware of this and just aware of the issue in general. This is a benefit you might have to track on your own though I will try to upload updates on this through the years on the website. However, as you’ll see in discretionary benefits, healthcare insurance is often provided by an employer because it’s very hard to attract employees, good employees, and get them to stay for a long time if you don’t provide this very popular employee benefit.
Now we’re on page 63, Roman Numeral 3, Discretionary Employee Benefits. We just learned about the employee benefits that are required by law that are mandatory. Then we move on to discuss employee benefits that are discretionary, meaning that it’s totally up to the employer whether or not they want to provide them to employees. There are common discretionary benefits and not so common discretionary employee benefits. Common discretionary employee benefits that are likely to be found in an employee’s compensation package include healthcare insurance. Others are vision and dental insurance, and retirement plans. Note that there is a brief summary of defined benefit versus defined contribution plans on page 63. Note that we’ll look more closely at retirement and retirement plans in a later lesson.
Other common discretionary employee benefits are vacation time, paid sick leave, and life insurance. Students may be surprised to learn that it is entirely discretionary on the part of an employer whether to allow vacation time. It is also discretionary whether an employee provides paid sick leave. Remember that unpaid sick leave is mandatory under the Family and Medical Leave Act. Most employers do however provide some paid sick leave and some paid vacation time because frankly, it’s very difficult to attract good employees without these benefits. You can read about vacation benefits, sick leave, and life insurance on page 64.
Perks are fun and are provided by a lot of competitive corporations trying to attract high-end talent. For example, paid maternity leave. It’s similar to the required Family Medical Leave Act, but the employee can opt to extend their leave time and it’s used a lot for extending maternity or paternity leave or for an extended illness. Other perks include tuition assistance, public service loan forgiveness, flextime which is pretty popular these days, and there are other miscellaneous perks listed on page 65.
On page 65, we come to Roman numeral section 4, Independent Contracting. An independent contractor is a self-employed person who provides goods and services to a company according to a contract. We also know them as freelancers. This is the fastest growing sector of the labor economy. So it’s important that students learn a little more about it. After all, there’s a very good chance that they one day will be an independent contractor or freelancer. There are a lot of upsides or benefits to freelancing. Of course, freelancers can pick their own hours. They can set their own schedules. They often work from home. There are a lot of fun and good things about freelancing. The downside of freelancing or the downside of indie is that there are no employee benefits provided to independent contractors. There’s no health insurance, there’s no retirement, no sick leave, and no paid vacation. Also, selfemployed people do not participate in any employee retirement plan, but they have a lot of ways that they can build their own retirement fund. They’re allowed to participate in individual retirement accounts which are IRAs and their savings accounts that have similar tax breaks to 401k’s. If you have students who are interested in being freelancers or independent contractors, they should be aware that, while they don’t have employee benefits, there are many ways they can create their own 401K type benefits with an IRA.
Below is The Big Picture which is a review of the key points of the lesson. Let’s Practice Activity A, Beverly is Befuddled by Benefits. Students can work in teams or groups on that. It’s just review of the lesson and the key points of the different types of benefits.
Activity B has students exploring job interview practice apps. Having good job interview skills is really a financial literacy skill. Students should work toward fluency in their interview answers. This activity identifies some apps that students can download, and provides some practice questions that students would answer in a typical job interview. They should answer the questions and listen to themselves afterwards. They’re going for the quality of their answer, tone of voice, volume, ease of answering, and sense of confidence.
Finally, we have Marcus’ Mumble and Fumble Job Interview. In that activity, someone role plays Marcus. Students listen to Marcus’ answer, critique the answer then compare what they think about it with what experts say.
In Ponder and Predict, students are asked to ponder their first paycheck. People are often shocked when they get their first paycheck. It’s a lot less money there than they had anticipated. Students are asked to ponder this issue, and predict where the money went. Under Assign, our Blog Qs are “Does the idea of freelancing appeal to you? Do you have the self-discipline and the ambition it takes to be successfully self-employed?” That’s it for this podcast. Thank you for joining me! I’ll see you on our next one which is “Honey, They Shrunk My Paycheck.”