Skip to Main Content

The Job Offer: How to Evaluate a Compensation Package

By The ZipRecruiter Editors

The benefits in your compensation package can be as valuable as your paycheck. When looking at a job offer, many people focus on the salary or hourly wage. This number is important, but to understand what the company is offering you, it’s crucial to look at both the gross pay and the non-cash compensation, such as health insurance, 401(k) matching, and tuition assistance.

Keep reading to learn how to evaluate a compensation package. This will enable you to understand the job offer you received to help you decide if it’s a good fit for you.

1. Base Pay Is More Than Just a Number

Calculating your base pay can be more complicated than looking at the hourly wage or salary offered. For example, if you are offered a hiring bonus, that can be included in base pay.

Important differences can impact the amount of money you take home. For example, if any of the following apply, you’ll want to calculate the financial impact:

  • If you are offered a salary with commission or bonuses, how are those calculated, and what is guaranteed?

  • If you are looking at an hourly position, will they need you to work overtime, and what is the compensation in that case?

  • Are you an employee of the company or is this a freelance or independent contractor position? If you are a contractor, you will need to pay an extra 7.65% in taxes that your employer will pay on your behalf if you are a company employee.

2. Paid Time Off

Different companies offer different amounts of paid time off. To understand how paid time off fits into your total compensation, assign it a dollar amount.

Start with the total number of work hours in a year (including holidays). For most jobs, this is 40 hours a week times 52 weeks, which equals 2,080 hours.

Imagine you’re looking at two job offers.

Job One

Job one offers $25/hour and 64 hours of paid time off.

Multiply $25 x 2,080 = $52,000. Then, calculate your hourly pay after the paid time off is deducted.

To do that, update the number of work hours in a year: 2,080 – 64 = 2,016.

Then, use that number to calculate your revised hourly wage: $52,000/2,016 = $25.79 per hour.

Job Two

Job two offers $24/hour and 120 hours of paid time off.

$23 x 2,080 = $49,920

2,080 – 120 = 1,960

$47,840/1,960 = $26.00 per hour

Your monthly take-home income will be less for job two than for job one, but when you include the paid time off, you effectively make more per hour.

3. Calculate Pre-Tax Benefits

Pre-tax benefits lower the amount of taxes you pay. Common pre-tax benefits include:

  • 401(k) matching

  • Health savings account contributions

  • Paid disability insurance premiums

4. Take a Close Look at the Health Insurance Plan

Don’t assume that two offers that include health insurance offer the same benefits. It’s okay to ask the hiring manager for the details about your premium payments and plan before you accept a job offer.

To compare health insurance plans, look at the following:

  • Employee-paid monthly premium

  • Deductibles

  • Co-payments for services

  • Included benefits

Some employers have a high-deductible health insurance program but add a health savings account (HSA) option. A health savings account can be a good option because you contribute pre-tax dollars, so it lowers your tax bill. Plus, if you have not used the funds for health-related expenses when you retire, the HSA functions as a regular retirement savings account, like an IRA.

5. Quantify the Value of Other Benefits

If an employer offers childcare but you don’t have children, you don’t need to include that benefit in your calculation. However, any other benefit they offer should be assigned an approximate monetary value so you fully understand the compensation package.

For example, if you can work from home two days a week, how much does that save on your commute? If your employer invests heavily in professional development and provides several trainings a year for your department, how much would you pay to secure that education for yourself?

6. Subtract Non-Reimbursed Out-of-Pocket Expenses

One aspect of a compensation package that is often overlooked is expenses you must take on that are not reimbursed. For example, a remote job may require a committed internet connection and a fast computer that the employer expects you to provide and maintain.

Other examples include:

  • Paid parking

  • Professional clothes (to meet a dress code beyond what you’ve worn before)

  • Travel expenses

  • Tools and supplies

Understanding Your Compensation Package Positions You to Negotiate

Negotiation is part of the hiring process. You can negotiate salary and compensation before you accept a job offer. The employer may not be able or willing to budge, but they should not be surprised or offended if you ask for more salary, paid time off, or training and development.

Some aspects of a job, like management style, company culture, or work-life balance, cannot be quantified. Your compensation package is important, but don’t let it be the sole factor in accepting a job offer.

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!

The information in our press releases, blogs, articles, testimonials, videos and presentations should be considered accurate only as of the date thereof. We disclaim any obligation to supplement or update the information in this type of content, and any links or references therein to third party articles or other third party content does not constitute our endorsement of that third party.

Read Related Articles