This might as easily be titled “Your ShurKil Ammunition to Bag the Raise You So Desperately Need” since my aim is to provide you with the information your ultimate boss uses to calculate your pay. The biases of information are these: I operate in the US, in the State of New Jersey, for a Small Business. You’ll need to adjust your calculations to take into account differences of nationality, statehood, and business size.
My example, however, draws from the job I do for another small business. My employer, a grandmotherly lady who runs a tutoring service, has far more expenses than the business my husband and I run has, and I don’t mind revealing my income, more or less. I wouldn’t guarantee the same for someone I haven’t asked. More than that, my income there is directly linked to billable services. I’m an unbillable for my and my husband’s business.
Let’s say your company charges 110 USD for an hour of your time doing the services you have agreed to provide. You get to take home 39 of those USDs, minus the taxes. This rouses your ire. “What’s she doing with that other 61 USDs that I could use to buy a flat screen plasma TV or a nice car or a better house in a neighborhood kind of like the one my student (client, customer) lives in?” Well, let’s start with the basics.
First, your employer has to deduct for Social Security. The total deduction amounts to 12.4% of the total dollars you earned. You pay 6.2% out of your 39 USD, and your employer matches it out of the 61 USD. So now, you’re at 36.58 USD, and your employer is at 58.58 USD. Social Security gets paid directly into the pockets of sweet little old men and women across the country who were counting on it to survive their retirement years with a little dignity. They did save for retirement and would have liked to have saved more, but their salaries and expenses didn’t allow for it. More than that, they may have funded things like home or auto purchases for their children, education expenses for their grandchildren, trips here and there to make life a little sweeter. I don’t grudge them a penny, and I don’t even remotely count on anything similar for myself.
Then, your employer has to deduct for Medicare. You’re paying for half of this as well, which comes to about 1.45%, so subtract fifty seven cents from each party and you’re now at 36.01 USD and your employer is at 58.01 USD. Medicare supplies these same sweet little old men and women with doctor visits, medications, hospital stays, diabetes testing supplies and motorized chairs. Again, I wouldn’t have it any other way since these lovely people, many of whom chat with me in the aisles at Wegman’s and in the craft stores I like to visit, worked their whole lives expecting this provision and would have planned things differently had they been told it wouldn’t be there.
But I have not even spoken of the Federal Income Tax. That one’s there, and it’s the one you have the power to affect. You filled out the W-4 when you signed on to work for your employer, and you got to take as many exemptions as you liked and then counterbalance that by asking the gov to withhold an additional amount if you wished. Your employer got a chart from the IRS (which agency is actually staffed by very nice people) and he or she ran his or her little finger down a line and found the weekly salary he or she intended to pay you, and then across to the number of exemptions you took, and landed on the weekly withholdings number for you. You can adjust this so that you and Uncle Sam come out even at the year’s end, which most financial guys advise. You can also file a new W-4 whenever you want. Your employer doesn’t match this, so let’s say I’ve wangled and finagled and Uncle Sam and I agree I’ll pay him 3.54 USD for every 39 USD I make. Now I’m at 32.47 and my employer is at 58.01. There’s more.
We have State of New Jersey Department of the Treasury to appease. So now we take my original 39 USD and deduct .3825% for Unemployment Insurance, .0425% for Workforce Development and then .5% for Disability Insurance. The employer matches these at 1.7825%, .1175% and .5% respectively, plus the employer pays entirely for the Health Care Subsidy at .9%. You pay your state income taxes entirely yourself. So now you’re at 26 USD and your employer is at 56.70 USD.
Wow, you think. Your employer is getting a much better end of the deal than you are. But wait, this is not over. There is one more hidden cost of employing you, and that is called FUTA, or the Federal Unemployment Tax Assessment. There is an additional 12.4 % of the first 7,000 USD that you make every year, and none of it comes out of your paycheck, so it all comes out of that 56.70. So let’s just guesstimate your employer down to 56 USD and proceed.
Still, you’re thinking, your employer has more than half of that 110 USD and you have about a quarter of it, and Uncle Sam took a quarter of it, so why can’t we work it out so that we all get a third and that will at least make a few more movies, some nicer dinners out, and a better vacation when you get those two weeks. But we haven’t finished with the unbillable expenses of your employer.
Your work for a client is a billable expense if your employer is sure to get money every time you break a sweat. Your work is not billable if no one has to pay your employer directly for what you do. More than that, you may get benefits. If you’ve got health insurance, your employer is probably paying about 350 USD to 700 USD every month to give that to you. (Oh, yes, it's a great benefit.) There are other insurance bills, too, to cover your employer in case someone sues or hurts himself or herself, and those policies can be 5,000 USD or more per year. Then, there’s the rent or mortgage on the office space, the cost of supplies, postage, heat and light, equipment, cleaning services…. I don’t know the cost of those things for my employer, but I may ask her one day.
Here is where you can use this information to your advantage. Maybe you are a billable expense, and you have realized that your employer gets to keep a much bigger chunk of your hourly worth than mine does. Perhaps you are in a position to let your employer know you deserve a bigger piece of the pie chart. But that smaller piece of the pie will taste better to your employer if he or she can squander less of it on unbillables. In other words, you will be your employer’s darling if you can somehow minimize your employer’s unbillable expenses, and maximize the fixed assets.
My attack plan goes thusly. My employer has no, and I mean zero, sense of interior space. She is trying to get as many individual students in to see as many tutors as she can during a few peak hours. And what does she do with her square footage? She clogs it up with filing cabinets, storage cabinets, useless tables, potted trees and a waiting area you could use to teach ballroom dance. Then, too, she is offering educational services. Most of her students want to be there at three, four, five, six or seven in the evening. But there are people who might like some kind of learning experience at 10:30 in the morning. I’m secretly planning to find a way to maximize her whole layout, so that she can comfortably fit more private sessions into the available hours, and then suggest she get some more offerings going to use the space in the time when high school students can’t. That would easily justify a bonus or a raise for me.
Your approach is two-pronged. Figure out what your piece of the action is, and what your employer’s is. Then figure out how to make yours larger, and how to make other expenses smaller. Find a cheaper insurance company. Find a better office supplies company. Re-negotiate the rent. Find more markets for your product. Economize, make yourself more valuable, and then take the spoils to your better-outfitted home.
Or if your employer doesn’t agree to your just rewards, take yourself off to someone who will.