10 ways to pocket more of your paycheck
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Want a bigger paycheck? It may not be as hard as you think.
A lot of people assume that more pay can come only from winning a promotion or finding a new job elsewhere. But there are ways — large and small — to put more money in your pocket each week. Separately, these strategies may not be enough to change your life. But put several together, and they start adding up.
”It’s nickels and dimes that can get you to a dollar,” says Alan Johnson, managing director of Johnson & Associates, a New York pay consultant. “A thousand here and there can add up to real money.” [See Also: The Money Book for the Young, Fabulous & Broke]
Here are 10 tips from compensation experts, humanresources managers and employees on how to beef up your pay.
1. LISTEN TO YOUR BOSS
You may work harder than the people around you, but your annual raise and bonus award may still be lower than theirs. That’s because your co-workers are getting more of the right things done than you and making sure their boss is aware of it.
”To say it concisely, the main way to increase your paycheck is to do a good job and make sure the right people know about it,” says Craig Schneier, executive vice president, human resources, for Biogen Idec, a Cambridge, Mass., pharmaceutical company.
The best performers received raises averaging 9.9 percent in 2005, compared with 3.6 percent for average performers and 1.3 percent for poor performers, according to a survey by Hewitt Associates, a consulting firm in Lincolnshire, Ill. Thanks to compounding, those differences translate into a lot of money over time.
Hewitt offers the example of three hypothetical employees, each hired in 2001 at a salary of $50,000. They then received salary increases related to their performances. After five years, the poor performer earns $52,807, the average performer makes $57,821, and the top performer earns $72,078. (Hewitt calculated the final salaries based on actual increases for the three types of performance since 2001.)
What’s more, don’t assume you know what your manager expects, and don’t be afraid to ask. You must understand exactly what he or she thinks is outstanding performance in your position, says Laury Sejen, practice director of strategic rewards for Watson Wyatt, a global compensation consulting firm.
Have two meetings with your manager, she advises. At the first, ask how you can earn the maximum amount of pay over time at your company. This can tell you what career goals to shoot for. At the second, ask how you can receive the highest salary increase.
Write down what you both agreed to and give your boss a copy, says Steve Gross, head of rewards consulting in Philadelphia for Mercer HR Consulting. At the end of the year, use this list to discuss how well you performed against your goals.
2. BET ON YOURSELF
Having a bonus tied to performance goals and hitting them can get you more money annually. More than 95 percent of companies offer executives a chance to earn annual bonuses, while 80 percent offer them to managers, 68 percent have plans for professionals and 54 percent award them to clerical and technical workers, according to Mercer HR.
Target bonus awards vary by industry and company type, but a typical bonus for an employee earning $50,000 might be 10 percent of salary, while someone earning $75,000 in salary might have a 15 percent target bonus and a $100,000-a-year employee might have a 20 percent target, Hewitt reports.
The key to receiving more bonus money is superior performance. If you meet your goals, you should receive your target bonus amount. But at some companies, if you exceed the targets set for you, you may receive an award that exceeds your target bonus.
It’s hard to increase the size of your target bonus once you’ve accepted a job. But when negotiating with a new employer, you might be able to swap a higher salary for a larger target award amount, Sejen says. Suppose the employer offers you a $100,000 salary and a target bonus of 10 percent of salary. You could counteroffer that you’d take a $95,000 salary if your bonus-award target was 20 percent of it. Your annual target pay then would be $114,000 instead of $110,000. ”An employer might be willing to change the pay mix,” Sejen says.
3. GET FINANCIAL ADVICE
Executives who are skilled at running their companies often aren’t so skilled at managing their own finances. Many could benefit from financial counseling so they know what to do with their stock options, restricted stock plans and other long-term incentives, says Paul Dorf, managing director of Compensation Resources, an Upper Saddle River, N.J., consulting firm.
”Most executives, if pushed, would say they are financially challenged when it comes to doing their own deals and could use a financial counselor to advise them,” he says.
One little-known Internal Revenue Service regulation allows executives to pay tax on the value of restricted stock when they receive grants. This may help lower capital-gains taxes when you sell the stock.
A counselor can also help you determine when it’s most beneficial to exercise stock options and whether to do so with cash or trade stock you already own. Using appreciated stock to exercise options may be better than using cash, because you reduce your taxable gain on the existing shares, notes Dorf.
4. LEARN ABOUT SPECIAL COMMISSIONS/AWARDS
Many employers pay one-time bonuses to employees who bring in new business or refer candidates for hard-to-fill company jobs.
Special bonuses also may be awarded to employees who accomplish something that’s unusual for their positions. Companies often call these ‘’spot” awards, and about two-thirds of U.S. employers offer them, according to Mercer HR.
Typically, a pool of money is set aside annually to allow managers to give out spot awards at their discretion. The amount awarded might range from $100 to six figures, although some companies give gift certificates or other noncash items, says Gross.
So, find out whether your company has a spot-award program. If it does, learn what your manager thinks it takes to get one.
5. CHANGE YOUR TAX WITHHOLDING
Taking home a bigger paycheck may be as simple as having less tax withheld. One sign that your current deduction is too high is getting a big refund from Uncle Sam on April 15, says Tim Jones, vice president, global human resources, for IXIA, a Calabasas, Calif., technology manufacturer.
Your goal is to have your company deduct only what you will owe the government. ”Otherwise you are loaning money to Uncle Sam,” says Jones.
Unless you say otherwise, your federal withholding filing class determines your state filing class. You can change either anytime by visiting your human-resources department.
Be careful not to have too little money withheld, or the IRS may fine you, says Art Kaufman, a tax accountant in Monmouth Junction, N.J. The IRS requires at least 90 percent of your upcoming tax bill to be deducted, he notes.
6. TAKE THE FREE MONEY
Many employers will match the amount you contribute to a 401(k) retirement savings account, up to a certain level. The company’s matching amount might be, say, half of your contributions up to 6 percent of your salary. As the minimum, employees should contribute enough money to get the maximum free matching money, Jones says.
While having money deducted for a retirement account reduces the size of your paycheck, the free money and the tax-free account growth will pay off.
7. PAY FOR AS MUCH AS YOU CAN WITH TAX-FREE INCOME
Many companies offer employees flexible-spending accounts that can be used to pay for commuting, healthcare and child-care costs with pretax income. The enrollment period — when employees sign up for the accounts and say how much they want deducted from their pay — usually occurs in the fall. Employees receive the untaxed money after submitting their expenses to their companies or a third-party administrator.
The potential for savings is significant. An average employee might owe 28 percent in federal, state and Social Security taxes, says Craig Copeland, a senior researcher for the Employee Benefit Research Institute in Washington. Such workers would have to earn about $14 of taxable income to cover a $10 expense. By having a fund of pretax money, they can keep the $4 that would go for taxes.
The more money you can set aside, the greater the saving. For instance, an employee who has $5,000 in pretax income deducted to pay medical or child-care bills would save $1,400, he notes.
But it’s important to know that you’ll forfeit any unused funds, so you have to be careful when deciding how much to have withheld.
8. ASK FOR A PAY RE-EVALUATION
You may be able to boost your salary outside of annual salary increases just by taking on more responsibility or being assigned to a department where employees doing the same thing are paid more.
Or, if you’re a valued worker and the market suddenly heats up for people with your skills, the company may want to raise your pay to ensure it retains you. This was the case with information-technology employees for a few years beginning in the late 1990s.
9. TURN DOWN BENEFITS THAT COST THE FIRM
Lowering a company expense can sometimes translate into a larger paycheck. This is the case for employees who are paid to ”opt out” of company medical-benefits plans because another family member provides coverage for them. The size of the payments usually varies depending on whether your health insurance was for a single person, couple or family. Your salary also will grow if you no longer have health insurance co-payments deducted.
You also might have grounds for a higher salary during initial pay negotiations by offering to forgo health benefits. Debbie Veney Robinson, a communications vice president with Communities in School, an Alexandria, Va., nonprofit that helps kids stay in school, negotiated a $10,000 salary increase by offering to do without health benefits when she accepted her job in 2005. Robinson receives health-insurance benefits through her husband’s plan.
10. DON’T FORGET THE SMALL STUFF
Some employees don’t take advantage of a plethora of benefits and freebies available from their employers.
Tuition reimbursement is offered at 85 percent of companies, while 30 percent match education or other charitable donations, according to Mercer HR. You may not have to take courses in your field to get reimbursed for educational expenses.
Some companies subsidize gym memberships. Nearly one-fourth allow employees to purchase products at a discount, while 19 percent offer discounts on movie or theme-park tickets and other entertainment events, Hewitt reports.
- Source: Perri Capell, 10 ways to pocket more of your paycheck, The Wall Street Journal, via Miami.com, Oct. 2, 2006
