Exercises: Employee Benefits and Compensation Packages

A benefit is contributory if the employee pays part of the cost, and non-contributory if the employer pays all of it. Classify each benefit below as contributory or non-contributory:

(a) a health insurance plan where the employer pays 70% of the premium and the employee pays the rest;

(b) a life insurance policy fully paid by the employer;

(c) a 401(k) plan funded by payroll deductions from the employee;

(d) paid sick days.

Chloe works part time at a grocery store. She earns $\$15$ per hour and works 30 hours a week for 4 weeks. Calculate her gross pay for the 4 weeks. Then explain whether she is paid a wage or a salary, and how the two differ.

Malik sells furniture and earns a commission of 3% of his sales. Last month his sales totaled $\$120{,}000$. Calculate his commission for the month. Then name one kind of worker who earns tips instead of commissions.

Maya has two job offers.

• Job A: $\$18$ per hour, 35 hours a week, 52 weeks a year. No benefits.

• Job B: a salary of $\$30{,}000$ plus a year-end bonus of 4% of salary. The employer also pays $\$2{,}000$ a year toward health insurance that Maya would otherwise pay herself.

Calculate the yearly value of each offer, counting the bonus and the employer's health payment. Then name one factor other than money that might change her decision.

Daniel can accept one of two jobs.

• Job 1: $\$52{,}000$ a year. He must commute to downtown Chicago, which costs about $\$40$ a week in gas, parking, and tolls. He works 50 weeks a year.

• Job 2: $\$48{,}000$ a year, fully remote.

(a) Calculate his yearly income after commuting costs for each job.

(b) List two intangible benefits that might make Job 2 more attractive even if the money were equal.

(c) Explain what tradeoff Daniel faces.

Olivia earns $\$50{,}000$ a year. Her employer matches 50% of what she contributes to her 401(k), up to 6% of her salary. Olivia contributes 8% of her salary.

(a) How much does she contribute in a year?

(b) How much does her employer add?

(c) What is the total deposited in a year?

(d) Is the 401(k) a contributory or non-contributory benefit? Explain.

Aaliyah is choosing between two compensation packages. Assume she contributes enough to get the full employer match.

(a) For each package, calculate the net yearly value: salary + match + employer health payment − premium she pays.

(b) Which package is worth more in money?

(c) Argue whether the higher-paying package is necessarily the better choice, using at least two non-income factors.

Marcus is choosing between two sales jobs.

• Option 1: a straight salary of $\$36{,}000$.

• Option 2: a base pay of $\$18{,}000$ plus a commission of 8% of his sales.

In a normal year he expects to sell $\$180{,}000$. In a recession year he expects to sell only $\$120{,}000$.

(a) Calculate his income under Option 2 in a normal year and in a recession year.

(b) Calculate the sales level at which both options pay the same.

(c) Argue which option you would recommend for someone who must pay a fixed $\$2{,}400$ in rent every month, and explain the role of risk.