Salary, the full story—how you could be
missing out on your full earnings
February 23, 2020
By: Lisandro Vazquez, PE
There are at least 5 common missteps that WILL cost you MONEY regarding your pay. If you’re just starting out, or if you haven’t given much thought as to how you’re getting paid, it may be easy to dismiss the idea that you may not be getting paid correctly or you may just assume that your company’s HR staff is “taking care of it.” Big mistake!
While your company’s HR personnel should and hopefully do know what they are doing, and likely work hard and take pride in their work just like you… people make mistakes—even the best of us. Don’t allow yourself to be a victim of that unintentional mistake.
Still, you may be thinking: “Come on… there is NO WAY this is common. This is probably a rare event and I’m probably just fine.”
While this should be a rare event—and for the most part it is—I can tell you from my own personal experience that mistakes regarding your pay undoubtedly happen way more often than you might think. Over my working career, I have found vacation accrual mistakes on my pay stubs, my salary was wrong for a short period of time, and my health benefits withdrawals have been incorrectly applied among other minor errors (like… my NAME was wrong). Furthermore, these mistakes were not isolated to a single pay stub or to a single employer.
So, if this is the experience of ONE person who has worked for MANY employers… perhaps it’s time for you to take a look at your own pay. Don’t get me wrong; the intent of this article is not to “scare” you, or to create some sort of sensationalized picture of a world rife with pay errors laying waste to countless victims… not at all. It is simply an honest acknowledgement that mistakes do happen on a personal—and institutional—level, and that it is in your best interest to take a proactive stance to ensure you are getting compensated correctly for your hard work. Keep reading for my top recommendations on how to ensure your compensation is correct.
5 steps to get your FULL PAY from Easiest to Hardest:
1. CHECK YOUR PAY STUB FOR ACCURACY.
When was the last time you actually reviewed your pay stub for accuracy? There may be errors; and it probably happens more often than you’d like to think… it’s happened to me twice ( :-/) .
Ok, so maybe you reviewed your pay stub during your first week or two of your current job. Great… no need to worry, right? Wrong.
Your pay is a dynamic situation. Even if your salary or wage hasn’t changed, there are a myriad of other factors which affect the amount of money you take home every pay period.
Here are some items which should signal you to review your pay stub in detail:
- Have you recently received a change in compensation—maybe a raise or increase in vacation/PTO?
- Have you recently signed up for your firm’s 401k (hopefully with employer match)?
- Has your family status recently changed? Birth of a child, Marriage, Divorce (i.e. change in number of dependents for taxes)
- Have you recently switched to a different health or dental plan which has a different monthly premium?
If you said yes to any of the above, did you check your pay stub to make sure the changes were properly implemented??? If not… uh oh… you might want to go take a look.
How to check your pay stub:
First of all, if you haven’t checked your pay stub since you started working (c’mon… admit it… this might be you) then figure out how to access your pay stub and make sure you have regular access to it from this point forward—have it mailed to you each pay period, or if your firm only gives electronic pay stubs on an intranet make a schedule so that you actually check it periodically (at least once a quarter). I don’t recommend downloading copies and emailing them to your personal email account due to security concerns.
Ok, now it’s time to methodically review your pay stub to ensure each and every category is error free, beginning with your name.
- Yes, it sounds silly, but make sure your name is spelled correctly.
- Verify hours on pay stub match actual hours you worked.
- Confirm gross pay based on hours worked matches your hourly wage per your work agreement, contract, signed offer letter… whatever.
- Verify deductions are correctly applied.
- Confirm your tax withholdings reflect your W-4 inputs.
- Verify that fringe benefits you are entitled to receive (based on your work agreement) are properly applied (example: employer 401k match)
- I have included example pay stubs throughout this article showing exactly how to review your pay stub, so keep reading to learn more!
- Yes, it sounds silly, but make sure your name is spelled correctly.
- Verify hours on pay stub match actual hours you worked.
- Confirm gross pay based on hours worked matches your hourly wage per your work agreement, contract, signed offer letter… whatever.
- Verify deductions are correctly applied.
- Confirm your tax withholdings reflect your W-4 inputs.
- Verify that fringe benefits you are entitled to receive (based on your work agreement) are properly applied (example: employer 401k match)
- I have included example pay stubs throughout this article showing exactly how to review your pay stub, so keep reading to learn more!
Things to consider while reviewing your pay stub:
Verify the regular hours worked reflected on your pay stub match the actual hours you worked for the timeframe covered by the pay period. Then, ensure that the hourly wage applied to your hours is correct.
From my own experience: Awhile back, I got confused on whether or not I was getting paid correctly. I looked at my pay stub hours and it had 89.5 regular hours worked over a two-week period. But when I calculated my hourly rate using the regular pay amount for the hours worked for that pay period divided by the hours worked, I got an hourly rate that was lower than what I expected.
I checked this by figuring what annual salary amount this would equate to by doing the following rough math: (pay period $)/(pay period hr) * 2080hr/yr (40hr x 52 weeks) = Annual Salary. This was wrong.
?
Keep this in mind… what does your work agreement or contract say with respect to expected/nominal hours per pay period? If your salary pays for 80 hours per pay period (40hr/wk) then you will get paid for those 80 hours only, and your “regular” hourly pay will be based on the nominal hourly rate calculated from your annual base salary.
Essentially, my extra 9.5 hours worked over the two week timeframe was given to the company for free. Of course, at many A & E firms you are “expected” to work more than 40 hours per week; so, this likely applies to you as well.
If you are eligible to receive overtime at your firm:
Verify that your overtime hours match the hours you worked above and beyond the overtime threshold set by your firm (40 hours for non-exempt employees; but hours vary for exempt employees based on company policy). Ensure that the overtime pay matches your contractual rate. If you are eligible to receive “time and a half” make sure that your gross overtime pay equals 1.5 times what you would have earned at the regular hourly rate. Similarly, if your overtime rate is equivalent to your regular hourly rate (common for exempt employees), ensure your overtime pay has properly accounted for your hours.
Not sure if you should be considered as an exempt vs non-exempt employee or vice versa? Not sure what those terms mean? Check out the excerpt below from the U.S. Department of Labor:
“The FLSA [Fair Labor Standards Act] requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.
However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684* per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.”
If you are a professional engineer, you are likely classified as a “learned professional” which is a broad category of the professional employee status. For more information on what exactly this entails, you can check out dol.gov’s fact sheet which contains links to all sorts of in-depth information regarding employment and pay. The link below will take you to the DOL Fact Sheet on overtime pay exemption for professional employees: https://www.dol.gov/whd/overtime/fs17d_professional.htm
Check out the example pay stub below for what to look for when reviewing your hours & wage.
Tax Withholdings: Guys, let’s be honest… taxes are confusing (at least in the US). There are so many caveats & loopholes, especially if you have multiple income streams, so I won’t attempt an in-depth segment here. The bottom line is, similar to the overall theme of this article, you should verify that the amount of taxes being withheld from your pay check is set how you wish it to be. Of course, you get a chance at annual reconciliation by April 15th each year (US); but it’s still beneficial to make sure that your scheduled tax withdrawals match your desired tax strategy.
The “big picture” on federal personal tax withholdings from irs.gov:
“The federal income tax is a pay-as-you-go tax. You pay the tax as you earn or receive income during the year. If you’re an employee, your employer probably withholds income tax from your paycheck and pays it to the IRS in your name. Avoid a surprise at tax time and check your withholding amount. Too little can lead to a tax bill or penalty. Too much can mean you won’t have use of the money until you receive a tax refund.”
The IRS actually has a pretty helpful Tax Withholding Estimator with an explanation written in a format which is very easy to read even if you aren’t a tax guru. I used the estimator while writing this article and was somewhat surprised with the results… I recommend you give it a try; you might be surprised too.
https://www.irs.gov/individuals/employees/tax-withholding
Additional withholdings: As of 2019, the withholding rate for Social Security and Medicare is 6.2% and 1.45% respectively for an employee. These numbers vary if you earn above a threshold of ~$132,900, so if you earn above this amount you may want to refer to irs.gov.
Check out the example pay stub below for what to look for when reviewing your taxes & withholdings.
Fringe benefits: Depending on your firm and/or position in the company, fringe benefits may be part of your total compensation package. As such, these should be accounted for on your pay stub. There are so many different types of benefits that fall into this category. So, I will simply list a few of the most common examples below and leave the rest to you as this is very specific to the individual employee/company. Just make sure you are receiving what you expect to be receiving and that your pay stub accurately accounts for your benefits.
Examples of Fringe Benefits:
- 401k Employer Match
- Educational Benefits
- Meals
- Employee Stock Options
- Group Term Life Insurance
- Company Provided Cell Phones, Cars Etc.
- Cafeteria Plans
Check out the example pay stubs below for what to look for when reviewing your fringe benefits as well as your total deductions. We’ll talk about things to consider regarding your total deductions later in the article, but for now we’ll just look at how to confirm your current deductions “as-is.”
Keep reading to learn how to check vacation & sick time accruals on your pay stub in addition to some helpful tips on how to maximize these benefits.
2. VERIFY VACATION & SICK TIME (PTO) ACCRUALS ARE CORRECT.
Review your vacation, sick leave, or PTO (paid time off) accruals for the correct rate and verify that the deductions for vacations up to your current pay stub have been entered correctly. Don’t be “wishy-washy” or “lax” on how your vacation or PTO hours get applied/deducted. These hours are part of your total compensation package… you’ve ALREADY worked for these hours so make sure they are used properly.
This form of compensation should show up on your pay stub as discussed in the previous section; however, it’s likely that you can easily access this information using the same software you input your hours into (assuming your company uses software for tracking employee hours & payroll).
You should see an “accrual” rate for vacation or sick time or paid time off (PTO). Some companies track PTO as one category while others separately track vacation and sick time. The concept in verifying accrual accuracy is the same in either case.
For a rough calculation on what your accrual rate should be, let’s say your work agreement or company policy is that you get three weeks of PTO each year. So, if you get paid every two weeks, then your PTO accrual on each pay stub should be:
(3 wk PTO/yr) x (5 work days/wk) x (8 regular hours/day) = 120 hours PTO/yr (total)
52 weeks/yr => 26 pay periods/yr (bi-weekly pay period… i.e. 52/2)
PTO accrual rate = (120 PTO hr/yr) / (26 pay periods/yr) = 4.62hr PTO/pay period
Check out the example pay stub below for what to look for when reviewing your PTO hours.
3. DON’T THROW AWAY VACATION OR PTO HOURS.
I cannot stress this enough: Don’t allow “use or lose” vacation or PTO hours to expire. IF YOU DO THIS YOU HAVE LITERALLY WORKED FOR FREE. Think of it this way: You’ve already worked for those hours (it’s part of your compensation); all you have to do is “cash in” and receive this compensation. Even if you don’t plan on leaving your house, you have still earned that time off and should use this time for you.
Of course, depending on your company or personal circumstances, you may be able to exchange your excess vacation hours for equivalent hourly pay; but, that’s probably not available for most of you reading today.
What is a “use or lose” day? How do I know if my vacation or PTO time expires; and how much of it will I lose?
The answers to these questions should be found in your company’s employee handbook, or company policies, or some sort of formal written document. Your company may not specifically state that you vacation or PTO hours will “expire” but they may use the word “rollover.”
For example, if your company’s employee handbook says that at the end of the calendar year 25% of unused (or excess) vacation hours will roll over to the next calendar year, it is essentially saying that you will lose 75% of whatever vacation time you have not used by the end of the year. There may even be an expiration date for that rollover amount as well, so make sure you fully understand how this policy works.
?!
To put this “loss” in dollar terms, let’s say that you get 10 vacation days per year, but you only used 6 days by the end of the year. Using the policy above, your company will roll over 25% (i.e. 25% x 4 days = 1 day) of your unused vacation days to the next year, and the remaining 75% (3 days) will essentially be deleted from your account. If you get paid $35/hr, then you are throwing away $840! (3 days x 8hr/day x $35/hr = $840… taxes not included)
When was the last time you willingly threw away $840 without blinking? If the answer is never, why would you treat your vacation time any differently?
4. GET YOUR EMPLOYER’S FULL 401K MATCH.
Ensure your minimum 401k contribution is at least equal to the maximum 401k contribution match offered by your employer (if available). I can say with virtually 100% certainty, that your company has factored in their potential 401k match to your account into what they have budgeted for your total compensation package for the year. So, not taking advantage of this is walking away from money they already assumed they would be paying you. Further, you are already working for this money if you are on salary.
Just some super rough math here: Let’s say you earn a $100,000 annual salary and your employer offers up to a 5% 401k match. Excluding bonuses, health/dental benefits, or PTO etc.; your employer has likely budgeted $105,000 to be allocated to you. So, if you don’t contribute to your 401k, not only are you missing out on the tax benefits of this type of account (i.e. greater take-home pay), but you are letting your employer keep $5,000 of your hard-earned cash.
5. GET A RAISE!
When was the last time you got a raise? How long have you been working with your team or in your current position? Are you doing a good job? Do your peers and managers respect your opinion, reliability, or hard work?
Now for a slightly different question: If you had to switch to a different company doing the same work you are doing today, what salary would you set as your desired target for negotiation? Is that number higher than what you make now? Is it reasonable? If so, then that is what you SHOULD be asking from your current employer NOW.
You don’t necessarily have to jump from company to company to climb the income ladder. If you like your current job and the people you work with… propose a higher salary to your current employer first before going through all that stress of switching jobs.
Remember, your employment situation is a business agreement between you and your employer. You are selling your services to your employer for an agreed fee (your total compensation). And just like any service, the higher the efficiency/performance/productivity the higher the premium it can command.
Hopefully the examples above and my own personal experiences will help you to ensure full realization of your hard-earned pay. The person who cares the most about YOU is YOU!
From your friends at Engineer Q&A, have a wonderful day and TAKE CHARGE OF YOUR CAREER!