BUDGETING FOR COLLEGE:
EMPLOYEE COMPENSATION
AND BENEFITS
Andrea Morgan, Gary Moore, and Melissa Greenslade
Program Coordinators
Office of Financial Aid
University of Arkansas
CONSIDERATIONS FOR YOUR FIRST JOB

Compensation
Pay
 Overtime
 Taxes
 Cost of Living


Benefits




Insurance
Retirement
Leave Time
Other Benefits
EMPLOYEE COMPENSATION

Salary
Annual rate of pay
 Set amount of pay per paycheck
 Work until the job is done; no overtime pay
 Often referred to as exempt employees


Wage
Hourly rate of pay
 Minimum wage is currently $7.25/hour
 Paid based on the number of hours actually worked
 Paid overtime if over 40 hours worked per week



Overtime = 1.5x wage
Often referred to as non-exempt employees
COMPENSATION TERMS





Gross Pay – total amount of your pay before any
deductions
Take-Home (Net) Pay – pay actually received by an
employee after deductions, including taxes, health
insurance premiums, retirement contributions, etc.
Commission – payment based on employee meeting
certain sales goals; usually a percentage of those sales
Bonus – money given to an employee in addition to
the employee’s usual compensation
At-Will Employee – Most employees are “at will”
meaning that your employment can be terminated at
any time for any lawful reason
EMPLOYMENT FORMS/TAXES

Form I-9
Employment Eligibility Verification From
 Verifies your eligibility to work in the U.S.



Must provide documentation to prove eligibility: driver’s
license, passport, social security card, birth certificate, or other
documentation
W-4 Form




Tells the employer how much money to withhold from your
pay for federal taxes (exemptions)
The fewer exemptions you claim, the more that will be
withheld from your paycheck
If you withhold too much then you will get a refund when
you file taxes, but are not paid that money during the year
If you withhold too little, then you could end up having to
pay taxes at the end of the tax year
EMPLOYMENT TAXES
Federal income taxes
 Social Security and
Medicare Withholdings




Also called FICA taxes
Approximately 7.65% of
your pay
State and Local Income
Taxes
Vary by location
 States can have no income
tax, flat tax, or progressive
tax

OTHER PAY CONSIDERATIONS

Pay Periods

How often are you paid?
Monthly (12 pay periods/year)
 Bi-weekly (26 pay periods/year)
 Other


Cost of Living

How much it costs to meet your basic needs where
you live
COST OF LIVING EXAMPLE

Fayetteville, AR vs. San Diego, CA







If you make $30,000 in Fayetteville, to have the same
standard of living in San Diego, you would need to
make $43,032
Groceries will cost 17% more in San Diego
Housing will cost 148% more
Utilities will cost 20% more
Transportation will cost 26% more
Healthcare will cost 22% more
Cost of Living (Comparison) Calculators
Data from CNN Money: www.cgi.money.cnn.com/tools/costofliving/costofliving.html
EMPLOYEE BENEFITS

Non-wage compensation offered to employees







Health Insurance
Other Insurance
Flexible Spending Accounts
Retirement
Leave Time
Other Benefits
On average employee benefits provide a 31%
boost to employee compensation
HEALTH INSURANCE

Enrollment is often allowed only within 30 days of hire,
during open enrollment periods, or if there is a qualified
change in family status


Qualified change = change in marital status, change in number
of family members (birth, adoption, child reaches age 26, etc),
change in coverage to spouse or dependent
Types of Health Insurance Plans

HMO (Health Maintenance Organization) – coverage is limited
to doctors who contract with the HMO, a primary care physician
(PCP) oversees your care and refers you to specialists as needed

PPO (Preferred Provider Networks) – allows subscribers to use
doctors, hospitals, and providers outside of network for a fee, no
PCP required

High Deductible Health Care Plan – high deductible plan with
low monthly premiums designed to offer minimal day-to-day
coverage but protect you in the event of a catastrophe

Point of Service Plans – combines aspects of HMOs and PPOs;
generally requires a PCP to make referrals to other doctors
within the network
HEALTH INSURANCE TERMS




Health Insurance Premium – the employee’s cost of
the insurance, often withheld from each paycheck
Co-Pay/Co-Insurance – your share of the healthcare
cost
Deductible – the amount you have to pay out of
pocket before the insurer covers costs
See Sample Health Insurance Chart handout
OTHER INSURANCE
 Employers
may offer other forms of
insurance




Vision
Dental
Disability – pays a portion of your salary if you
become disabled or unable to work due to
injury or illness
Life – Pays an amount to your beneficiary if
you die

You must choose (and update) your beneficiary or
beneficiaries
CAFETERIA PLAN

A Cafeteria Plan is a plan that offers flexible
benefits using pre-tax income

Employees choose their benefits from a selection
offered by the employer.


The selections can include medical, accident, disability,
vision, dental, group term life insurance, and
reimbursement for child care or medical expenses
Once you opt in to a Cafeteria Plan, you may not
change until the end of the plan year unless you have
certain special circumstances
FLEXIBLE SPENDING ACCOUNTS (FSA)

Designated, pre-tax amount of your gross income is
deposited into an account to pay for eligible costs





Reduces taxable gross income
Subject to maximums set by the IRS
You are reimbursed from the account for eligible costs
You lose unused amounts in the account at the end of the year
Healthcare FSA
Eligible expenses: deductibles, co-pays, over-the-counter
medicines (requires prescription), physical therapy, contacts,
braces, etc.
 Entire designated annual amount is available January 1 or
after the first contribution is made


Dependent Care FSA

Reimbursement for daycare or other dependent care expenses
that allow you to go to work

Qualified dependents: children under 13, dependents of any age
that are physically or mentally incapable of caring for themselves
RETIREMENT BENEFITS


Defined Benefit Plan – pays an amount based on a predetermined formula; often called a pension
Defined Contribution Plan – retirement amounts are
based on the contributions of employee and employer,
and any investment earnings on the account
401(k) – offered by public or private for-profit companies
 403(b) – offered by tax-exempt or non-profit organizations



Employer Match – many employers match a portion of
the contributions employees make to their accounts
Vesting – your right to the money in your account
You are always 100% invested in the money you contribute
 Employers may have a vesting schedule that outlines how
much of their contributions you own

LEAVE TIME


The amount of time off you may take from your job
Vacation, Personal, and/or Sick Leave


Paid Time Off (PTO)


Bank of leave time not allotted to any specific category
Unpaid Leave of Absence


Some employers divide your time off into these categories
Time off that is not paid; employer’s discretion whether
allowed, unless it is FMLA
Family Medical Leave (FMLA)
Mandates unpaid, job-protected leave for up to 12 weeks a
year to care for a sick or injured family member (spouse,
child, or parent) or recover from your own illness or injury
 Does not apply to small businesses (less than 50
employees); part-time workers, or for short-term illnesses

OTHER BENEFITS

Employers may also offer a variety of other
benefits:






Tuition Reimbursement
Fitness Center Access
Parking Fees
Childcare
Mileage/Gas Reimbursement
Etc.
GETTING PAID
 Employers
use different methods of paying
their employees:

Paycheck with a paycheck stub


Direct Deposit


a physical check with attached information to show
deductions; the employee is responsible for handling the
check
Pay is directly deposited into your bank account
Payroll Card
A prepaid card that has money electronically loaded on
it, used similar to a debit card
 There may be fees associated with using a payroll card

UNDERSTANDING YOUR PAYCHECK
Included on every paycheck stub:

Pay Period – time period covered by the check (weekly, biweekly, twice a month, monthly)

Gross Pay – total amount earned before deductions

Net Pay – amount the employee “takes home” after
deductions

Federal Withholding Tax (FT or FWT) – amount withheld to
pay federal taxes

Based on information provided on the W4

State Withholding Tax (ST or SWT) – amount withheld to
pay state taxes

Social Security (SS, SSWT or OASDI) and Medicare (MWT or
Med) or FICA Taxes


May be combined or listed separately on your pay stub
Year-to-date (YTD) – totals of pay and/or deductions made for
the year up to the pay period on the paycheck
UNDERSTANDING YOUR PAYCHECK,
CONT’D.
Items that may also appear on your check stub:

Local Tax – may apply to employees of certain cities, counties
or school districts

Insurance Deductions– amount withheld for medical benefit
premiums

Retirement – amount you contribute to your retirement plan

Childcare Assistance/Dependent Care Deduction

Leave Time – vacation hours or sick hours used to date and
remaining

Other Voluntary Deductions from your paycheck (parking,
donations, gym membership)

Important Notices – a portion of the paycheck may be
designated to communicate important information like wage
increases or tax information
UNEMPLOYMENT BENEFITS







Payment from the government to unemployed people
The amounts of previous earnings and time worked (base
period) are used to determine the benefit amount
The average weekly benefit is 36% of your previous weekly
wage
Must register and document seeking work
Previously part-time, temporary, and self-employed
workers do not qualify
Generally, the worker must be unemployed through no
fault of his/her own
Register with the state unemployment agency,
ex: Arkansas Department of Workforce Service
COBRA HEALTH INSURANCE

Provides certain (former) employees and dependents the
right to temporary continuation of health insurance
coverage at group rates.
 Must have been covered under the group health plan of
an employer with 20 or more employees the day before
the qualifying event



The qualifying event determines who the qualified
beneficiaries are
More expensive than the insurance for active employees
since the employer will not be paying part of the premium.
You, spouse, and dependent children can receive COBRA
benefits for 18 months if employment is terminated
SELF-EMPLOYMENT



Speak to an attorney and an accountant
regarding the many ways you might structure
your business and the many legal and financial
considerations to take into account.
Remember that as a self-employed person, you
will need to pay employment taxes to the IRS at
tax time.
You will also want to consider health insurance
coverage and retirement plans.
NEGOTIATING SALARY AND
BENEFITS FOR YOUR FIRST JOB

Do not immediately accept: ask for time to consider the offer

Consider the entire job package – not just the wages/salary





Think about responsibilities, benefits, perks, hours, work
environment, flexibility, and other preferences you may have
Research the typical pay for similar jobs (remember cost of
living adjustments) and your level of education and experience
Try not to discuss salary until you have an offer; if pressed,
say you are flexible or provide a range, not a specific amount
Even if you are not able to get the salary you wanted, you can
negotiate some benefits, such as signing bonus, education,
vacation time, flexibility, etc.
Keep your goals reasonable: Remember a new graduate will
not have the same negotiating power as someone who has been
working in the field for many years
BACKGROUND CHECKS

References & Credentials Check


Criminal Records Check


Education, Employment, Licenses, Military Service Record,
Workers Compensation Claims
County, State, and Federal Criminal Record Searches,
Civil Record Search, Sex Offender Registry, Fingerprinting
Identity and Credit Check
Confirm identity and right to work in this country
 Provide insight into personal responsibility & reliability
 Can check up to 10 years into your past


Driving Records Check
If required to operate a vehicle for business purposes
 Can check the past 3-7 years


Physical/Substance Abuse Tests
BEFORE YOU GO…


Please complete and submit the evaluation form
PowerPoint presentation and handouts will be
posted on our website with all other Budgeting
For College Seminars
THANK YOU!

Contact Information:






Office of Financial Aid; Andrea, Gary, and Melissa
Campus location: 114 Silas Hunt Hall
Phone: 479-575-3806
Fax: 479-575-7790
Website: http://finaid.uark.edu/
And find us on Facebook at University of Arkansas
Financial Aid!