Simple and Easy Explanations to Complex Company Benefits

This article is all about providing simple and easy explanations to complex company benefits so you don’t have to waste time interpreting and can spend more time making informed decisions.

Let me set the stage. You started your new job and just walked out of the onboarding session where HR explains all of your benefits. As you are exiting the room, you promptly pick up your cell and call your mom, freaking out about how you don’t know what a HSA is and if you should contribute to it. Does this sound like you? If yes, keep reading. 

In this post, I am going to provide simple explanations to complex company benefits. I will walk you through some of the most common tech company-sponsored benefits and explain what they mean in SIMPLE terms. Note: Everyone’s preferences will be different based on what makes sense for your life. Also note: I am not an accountant, tax professional, financial advisor, attorney, or any other type of qualified professional. The contents of this article are purely my own opinion based on my experiences and the definitions are generic. If you have specific questions, make sure to read the fine print of your benefits package, talk with your HR department, and/or work directly with a licensed professional.

Since there are so many types of benefits, I am going to split this into a two-part post. In this post, I’ll explore the meatiest of them all: Insurance and Financial benefits. In the next post, I’ll tackle others such as well-being, time-off, and ad-hoc benefits. 

Explanations to Complex Company Benefits

Insurance + Financial Benefits

I’ll begin by noting that federal law mandates certain benefits, such as Workers’ Comp Insurance. I won’t delve into those since they are required offerings for all employers. That said, many companies – especially in tech – will offer additional benefits to make their company a more desirable place to work. This is why it’s important to understand the benefits package before you accept an offer.

A word to the wise: Beware of companies that overload on benefits but undercut on other things. I’d be wary of a company that pays lower than industry standard, but claims to ‘make it up’ with their benefits. Company benefits should not replace your core job requirements; they should be additive. 

INSURANCE BENEFITS

• Medical Insurance
  • Your company will either charge you $0 or some nominal amount (called a premium) each month. 
  • In exchange, they will pay for most medical or surgical expenses and preventative care costs you incur during employment. 
  • Most companies will give you options for the monthly costs. A general rule of thumb is as the premiums increase, the amount you have to pay out of pocket (called a deductible) usually decreases. 
  • Choose the plan that works best for your lifestyle and based on how much you are willing to spend each month. If you are someone who is prone to more injury, consider a plan with a lower deductible. 
  • Additionally, ensure you read the fine print regarding the covered types of medical/surgical expenses. Some expenses like elective procedures may not be covered.
  • Lastly, if you like going to a specific practice, make sure they accept the type of insurance before switching. A really good way to check is on ZocDoc. Simply type in the type of insurance your company offers to find providers near you. 

• Dental Insurance
  • Same thing as medical but for your teeth 🙂
  • Most companies will have fewer options for dental insurance, but it usually doesn’t matter since the premiums are so low to begin with.
  • If you are considering things like Invisalign, make sure to read the fine print. Most plans will not cover elective procedures like that.

• Vision Insurance
  • Again, same deal as dental. Less options, but most premiums are very low. In fact, a lot of companies just give this for free. 
  • Plans will usually award you an annual check up and some kind of stipend towards contacts/glasses should you need it. 
  • Even if you don’t wear contacts/glasses, you should still consider opting in. Checking your eyes annually is healthy! (I sound like your mom now).

• Life Insurance 
  • Yes, it’s morbid, but it’s also important, especially if you are a caregiver or provider for your family. And it’s often something young people overlook because they think they don’t need it. 
  • This ensures that your family will receive some sort of financial benefit if you were to pass away while employed.
  • Most companies will offer this free of charge and if they do charge you, it’s like a very small amount monthly. 
  • Also, the amount of the benefit will vary from plan to plan. Make sure to read the fine print.

• Disability Insurance
  • This insurance guarantees you receive a set percentage of your salary if you become physically or mentally impaired and unable to work.
  • Most employers will offer this free of charge.
  • Generally, most plans will offer anywhere between 60-80% of your salary should you become impaired or disabled for a set period of time.

*This article is all about providing simple explanations to complex company benefits*

FINANCIAL BENEFITS

• Retirement / 401K 
  • This benefit allows you to contribute a percentage of your monthly salary to a retirement account called a ‘401K’. 
  • The benefit is that when you contribute the funds, you don’t pay taxes on those funds. They are called ‘pre-tax’ contributions. 
  • The idea is that you contribute to your retirement throughout your working life and when you’re ready to withdraw the money, you’re in a lower income tax bracket (due to reduced income or retirement), resulting in lower taxes on the funds
  • That said, the rules around 401K are very strict. A few big ones to keep in mind:
    • You can only contribute up to a certain amount per year. 
    • You can’t take the money out early without paying a penalty unless for specific reasons like education or buying a first home. 
    • You have to be a certain age before you can withdraw from it penalty free. 
  • To learn more about the 401K rules, Investopedia does a nice job spelling it out here.

• Stock Awards
  • RSUs
    • This stands for Restricted Stock Unit
    • They are usually offered as part of the ‘compensation package’ since eventually they will be worth actual cash value. 
    • The company will award either a certain amount of value ($) or a certain number of RSUs and provide what is called a ‘vesting schedule’. This schedule will tell you when the shares will be released to you. 
    • Until your shares vest, they only represent a ‘promised future value’ because you technically don’t own them yet. Once they vest, you own them and therefore, you can sell them on the public market (assuming you are not in a no-sell period). 
    • Regarding taxes – when you get RSUs, the federal government counts it as ‘income’ and therefore it is subject to your standard income tax. 
    • Additionally, if you hold the stock for at least a year and over that time the value of the stock increases and you realize a ‘gain’, you will be subject to long-term capital gains tax for that gain. If the value decreases, you will be able to claim a ‘loss’ and pay less in taxes. 
    • If you leave the company before your vest date for a tranche of shares, you will likely forfeit them. If you get acquired, the vest schedule will likely be accelerated.

• Stock Options
  • ISOs
    • This stands for Incentive Stock Option. 
    • Notice it says ‘option’. This means that when these shares vest in the future, you will have the option to buy them from your company at a discounted rate. 
    • The discounted price you pay for the stock is called your ‘strike price’. 
    • When a company goes public, you take the fair market value of the share (you will learn this value when the company makes its initial public offering but you can also get ‘speculative fair market value’ from your finance team prior to an IPO) and subtract the strike price to realize your gain. 
    • As with all gains, they are subject to long term capital gains tax 🙂

• Performance Rewards and Incentives
  • This could refer to either a bonus or commissions
  • When referring to a bonus – companies will generally offer this as a percentage of your compensation. This is contingent on you, at the very least, meeting expectations in your role. It is usually paid out once a year upon your annual performance review.
  • When referring to commissions – they work a bit differently. They are tied to hitting performance milestones (such as a certain # of signed deals if you are in sales). Generally, commissions are paid out on a monthly or quarterly basis.

• Employee Stock Purchasing Program (ESPP) 
  • If you are joining a publicly traded company, they may offer you an ESPP, which is essentially the offer for you to buy stock of the company at a discounted price because you are an employee. 
  • Most ESPPs limit the amount of stock you can buy and there are usually strict rules around when you can opt in/out and sell your shares. 
  • Make sure to read the fine print and ask your HR department about any ‘blackout periods’.

• Tuition Reimbursement
  • If you are looking to go back to school in the foreseeable future, tuition reimbursement is not something you should overlook as part of a benefits package. 
  • Generally, employers have varying levels of tuition reimbursement. I’ve seen it all from yearly stipends to full coverage of tuition.
  • In order to get this benefit, you usually need to meet certain GPA requirements and agree to work for the company for at least 2 years post graduation. 

• Flexible Spending Account (FSA)
  • This is essentially a savings account (just like you have at Chase bank), but it allows you to contribute pre-tax dollars to it. 
  • These types of accounts are usually reserved for certain out-of-pocket health care costs. Make sure to read the fine print around what is approved and not approved. 
  • Also beware because many times the funds do not carry over. That means, if you don’t spend all the funds in a calendar year, you could lose it the following year.

• Health Savings Account (HSA)
  • Generally, if you enroll in a high deductible insurance plan, you will have an HSA available to you. 
  • HSAs are also savings accounts that allow you to put pre-tax money aside to pay for qualified medical expenses. 
  • Unlike a FSA, you can roll over this money from year to year if you don’t spend it. 
  • In addition to helping cover medical costs, there are tax advantages to having an HSA.

This should provide you with the baseline foundational knowledge you need to start your benefits planning process. As mentioned,  if you have specific questions, make sure to read the fine print of your benefits package, talk with your HR department, and/or work directly with a licensed professional.

If you enjoyed this article, make sure to check out the sequel to this article here, where we go into more detail on more bespoke benefits.

*This article is all about providing simple explanations to complex company benefits*

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