Ian earns $62,000 per year, receives 15 days PTO, 6% retirement matching, and receives 70% employer-subsidized health insurance which totals $10,000.
Calculate the benefit rate.
| | |
| :------------------- | :------- |
| Employee Benefits | |
| Health Insurance | 70% |
| FICA | 7.65% |
| Paid Vacation (PTO) | 15 days |
| Retirement Matching | 6% |
[?] %
Round to the nearest percentage point.
Answer (2)
Calculate the employer's health insurance contribution: 0.70 \t \t × $10 , 000 = $7 , 000 .
Calculate the retirement matching amount: 0.06 \t \t × $62 , 000 = $3 , 720 .
Calculate the value of PTO: 260 $62 , 000 \t \t × 15 = $3 , 576.90 .
Calculate the benefit rate: $62 , 000 $7 , 000 + $3 , 720 + $3 , 576.90 \t \t × 100 ≈ 23% . The benefit rate is 23 % .
Explanation
Calculate Health Insurance Benefit First, we need to determine the value of each benefit. The health insurance is 70% employer-subsidized, so the employer pays 70% of the total cost of $10,000.
Health Insurance Calculation The employer's contribution to health insurance is: 0.70 × $10 , 000 = $7 , 000
Calculate Retirement Matching Next, we calculate the retirement matching. The employer matches 6% of the employee's salary.
Retirement Matching Calculation The retirement matching amount is: 0.06 × $62 , 000 = $3 , 720
Calculate PTO Value Now, we need to calculate the value of the paid time off (PTO). We assume there are 52 weeks in a year and 5 workdays per week, totaling 260 workdays in a year.
Daily Rate Calculation The daily rate is the annual salary divided by the number of workdays: 260 days $62 , 000 = $238.46 per day (approximately)
Total PTO Value The total value of the PTO is the daily rate multiplied by the number of PTO days (15): $238.46 × 15 = $3 , 576.90 (approximately)
Calculate Total Benefits Now, we sum the values of all the benefits: Health Insurance, Retirement Matching, and PTO.
Sum of Benefits Total benefits = $7,000 (Health Insurance) + $3,720 (Retirement Matching) + $3,576.90 (PTO) = $14,296.90
Calculate Benefit Rate To find the benefit rate, we divide the total benefits by the annual salary and multiply by 100 to express it as a percentage.
Benefit Rate Percentage Benefit Rate = $62 , 000 $14 , 296.90 × 100 = 23.0595% ≈ 23% Rounding to the nearest percentage point, the benefit rate is 23%.
Examples
Understanding benefit rates is crucial in personal finance and compensation analysis. For instance, when evaluating job offers, knowing the benefit rate helps you compare the true value of different packages. A higher benefit rate indicates that the employer is contributing more towards your overall well-being, including health, retirement, and time off. This comprehensive view aids in making informed decisions about your career and financial future, ensuring you're not just looking at the salary but also the additional perks that significantly impact your financial health. For example, knowing that a company offers a high retirement matching percentage can influence your long-term savings strategy.
Ian's benefit rate is approximately 23%, calculated by summing his health insurance contribution, retirement matching, and PTO value, then dividing by his annual salary. This gives him a clear picture of the total value of his benefits. Employers often provide additional benefits, making understanding the benefit rate important for evaluating overall compensation.
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