Your employer paid benefits may cost you more than you realize. When I talk about your employer paid benefits I’m not referring to the “free” office supplies, subsidized soft drinks, or even the occasional free meal at the holiday party. According to a survey published by the US Chamber of Commerce in January 2004, employer paid benefits averaged 42% of an employees salary in 2002. Even if you do, your employer is most likely paying the lion’s share of the cost. Instead of paying 7.65% of your income for these, you will now pay 15.30%.
Before you take that final step to personal freedom, make sure you truly understand what you are giving up. Your employer paid benefits may cost you more than you realize.
When I talk about your employer paid benefits I’m not referring to the “free” office supplies, subsidized soft drinks, or even the occasional free meal at the holiday party. According to a survey published by the US Chamber of Commerce in January 2004, employer paid benefits averaged 42% of an employees salary in 2002.
If this number shocks you, then let’s take a look at some of the typical benefits employers provide. Employers also cover the cost of many other forms of insurance.
Disability,
Dental,
Vision,
Life,
Unemployment,
Long Term Care Insurance, and
Workers Compensation
You might be thinking that you pay premiums for these products already. Even if you do, your employer is most likely paying the lion’s share of the cost.
Self-employment taxes include the employer paid portion of Social Security and Medicare taxes. Instead of paying 7.65% of your income for these, you will now pay 15.30%. You will have to file and pay taxes 4 times a year now, instead of just once.
The second highest benefit cost is your retirement benefits. If your company has a defined benefit pension plan, you are losing a guaranteed income in retirement.
These are only a few of the largest items that make up the 30 – 40% of your salary that will become your responsibility when you become self-employed. Your company might be paying for many other perks. Some other things you might want to consider are
A company car (this includes gas and maintenance).
annual or performance bonuses.
professional training or expenses (including professional journal or society dues).
software license that let you use programs like Microsoft Office programs on your home computer.
vacation pay (that’s right, you no longer get paid when you take days off).
All of these, and any others you might be able to think of will needed to be included in the total cost of becoming self-employed.
I hope you don’t think I’m trying to discourage you from finally being able to become your own boss. I just know that the excitement of finally making this move can make us forget about some of the “extras” we are receiving. You are considering a very serious change and need to make sure that the benefits are going to outweigh ALL of the costs.
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