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Salary vs. Total Compensation: Understanding the Difference

By The ZipRecruiter Editors

When you receive a job offer, you understand that the salary is the amount you are paid for your work. This number will set the budget for your day-to-day life.

However, salary is one of many ways an employer can compensate you. Job seekers often overlook the total compensation offered by a job, which can significantly impact your lifestyle.

Base Salary or Hourly Wage

Depending on the job, you may be offered a base salary or hourly wage. Both are expressed in terms of gross income before taxes and other deductions, which means the net pay will be less.

With an hourly wage, your monthly take-home pay will vary based on the number of hours you work. Depending on the employer, workers paid by the hour may qualify for overtime work and pay.

An employee with a base salary receives the same amount every month. They may qualify for bonuses but are not paid for overtime.

What Does Total Compensation Include?

Total compensation includes your income from your base salary or hourly wage plus the following:

  • Paid time off (vacation days, sick days, holidays)

  • Insurance (medical, dental, vision, disability, life)

  • Bonuses

  • Commissions

  • 401(K) or other retirement plans

  • Gym membership

  • Tuition assistance

  • Childcare assistance

  • Flexible schedule

  • Remote work or hybrid schedule

  • Employee support programs such as legal advice, coaching, or counseling

  • Profit-sharing distributions

Some companies provide a total compensation statement in the job description, using vocabulary that outlines the value of all the benefits included in the employee compensation package. With other companies, you must calculate this value yourself.

While your salary is important, focusing solely on that number may cause you to miss out on other great benefits. For example, imagine you are comparing two job offers. The first job offers 10% more salary but almost no additional benefits. The second offer includes more time off, tuition assistance, 401(K) matching, a hybrid remote and in-office schedule, and better health insurance with dental. When comparing the two total compensation packages, the second job actually “pays” you a lot more.

The Value of Non-Cash Benefits

Total compensation includes salary and non-cash benefits. While getting a salary that meets your monthly needs is essential, the non-cash benefits can have a surprising impact on your bottom line.

For example, an employer that covers the cost of a robust health plan with low deductions and co-pays can save you hundreds or thousands of dollars a year on medical care. If you make $200 more a month but must pay $300 toward the employer-sponsored health plan premium, your total compensation is actually less. Then, if you are required to pay a $100 co-pay per visit, plus lab fees and medication, medical-related costs can add up quickly, even for routine care.

Paid time off is another remarkable benefit that adds up quickly. The combination of holidays, sick leave, and paid vacation time can significantly impact your quality of life, whether to take a needed vacation or be available to your family during times of need. Paid time off helps you achieve that without losing income.

Employers who match your retirement savings contributions effectively double the pace of your retirement savings. While it doesn't change your life in the short term, it can make a big difference in when and how comfortably you retire.

How to Calculate Total Compensation

Here are the steps you can use to calculate your total compensation. Use this formula to compare job offers or to understand your current total salary and non-cash benefits.

1. Salary

Identifying your monthly gross salary is the first step. If you are an hourly employee, you can use an average of your monthly gross income or the gross income you receive when you work 40-hour work weeks.

2. Paid Time-Off

Add the total number of days (or hours) of paid time off you qualify for each year. This may include vacation time, sick time, and holiday pay.

Once you have your total days off, multiply this by your daily gross pay. For example, if you get a total of 25 days off a year, including vacation, sick time, and holiday pay, and you make $200 a day before taxes and deductions, the total annual value of your paid time off is $200 x 25 = $5000.

If it's easier to calculate in hours, you can multiply the total number of paid hours off by your gross hourly pay. For example, 180 hours x $28/hour = $5040.

3. Insurance Benefits

How much does your employer (or prospective employer) pay for your monthly insurance benefits? This may include health, dental, vision, and life insurance benefits, although health insurance is the most common.

You can get the total from your pay stubs if you are currently employed. If you are considering a job offer and it's not listed in your offer, you can ask the hiring manager for the number.

4. Commissions or Bonuses

If your position includes commissions or bonuses, these are usually NOT guaranteed income sources. They are often based on your performance as an employee or the company's performance as a whole. You can estimate your bonuses based on past performance.

5. Other Benefits

Add up the cash value of all other benefits offered. For example, if the employer provides childcare, how much would you pay for childcare out of pocket if you didn't have that benefit? If you plan to get a graduate degree and the employer offers tuition assistance, how much will that save you?

Each of those numbers contributes to your total compensation.

Total Compensation Is More Than Your Salary

As you narrow down your job search, it's essential to know that employee compensation encompasses much more than salary. Your monthly net income is important, but non-cash benefits can significantly boost your lifestyle and allow your cash income to stretch further.

The ZipRecruiter Editors

At ZipRecruiter, our mission is to connect employers and job seekers with their next great opportunity. On the ZipRecruiter blog, we use insider experience and data derived from our AI-driven jobs marketplace to provide advice and insights on topics such as the job search process, interviewing, and labor market trends. Start your job search or post a job today and connect with us on TwitterFacebook, and LinkedIn!

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