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Can you please help me with the following reasoning?

case A)

Full time (W-2) employee, in IL state, with gross salary: 140k

140k divided by 2080 gives ~ $67/hr gross. In this case benefits are included and the bi-weekly real paycheck of the employee is ~ $4,100.00 which divided by 80 hours gives ~ $51/h net.

case B)

W-2 with no benefits at $77/hr. Employee has to pay himself the (COBRA) benefits which are ~$900 / mo = ~ $5.5/h. In this case employee stays in IL but has to travel and work weekly to Maryland, MD (travel expenses are covered by employer).

Question

Since in case A the difference of $16 = (67 - 51) goes to taxes and benefits, what is an approximation of the same difference in case B? I.e., how much would be the approximate net / h rate of the employee? Is $55.5 = $(77 - 5.5 - 16) a good lower bound for this approximation?

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    I think you should look at the ratio of gross:net and apply that, since taxes are percentages. In case A, is the employer paying the full cost of health insurance, or is some portion coming out of the paycheck? – Hart CO May 4 '17 at 21:54
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    Are you a W2 employee in both cases or are you a 1099 contractor in case B? Is this just a matter of benefits contribution? Are there more benefits beyond healthcare (there life, LTD, and paid time off are also common). – quid May 4 '17 at 22:06
  • @Hart CO , portion of the paycheck. – pebox11 May 5 '17 at 12:31
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    I know you said no benefits, but what about Vacation, Holidays, and sick leave? If you are a 1099 then you will have to include both halves of FICA. – mhoran_psprep May 5 '17 at 16:37
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    Travel expenses may be covered, but how much time are you spending in MD each week? I'd consider the hassle of having to fly between IL and MD (at least) once a week to be worth a lot more than more than $36/day. – chepner May 18 '17 at 19:25
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I see a few ways to improve your comparison:

  • COBRA is a temporary insurance plan meant to cover you between jobs and prevent issues with pre-existing conditions. $900/mo seems expensive for health insurance in general (maybe not for COBRA) unless you have health issues (I am blessed with good health and may be jaded) or a big family - I would shop around for permanent health insurance and use that as a comparison
  • I think you're double-counting health insurance in your second calculation. You're deducting the $4.5/hr for COBRA and the $16/hr for "benefits" which I assume means health coverage.
  • I would exclude taxes from both - more income equals more tax all else being equal
  • You assume the benefits from A will cost the same if you work for B. Depending on what they are, they might be different prices (or not available at all)
  • You don't include 401(k) at all (a better match is more valuable)
  • Are the jobs completely identical other than pay and benefits? You mention having more travel - is that extra time away from home worth the compensation?
  • @D Stanley: Thank you for your answer. To your points. 1) Indeed I (somehow) double-count health in case B, but that is why I am talking about a "lower bound" approximation. 2) case B is an up to 12 months non-renewable project, that is why I am considering keeping my COBRA. 3) Employee opted out from 401k's. 4) As a working hypothesis suppose jobs in both cases are completely identical. – pebox11 May 5 '17 at 14:59
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    900 a month is totally reasonable for COBRA; I would pay I htink $150 a month for employer based one-person insurance and that is around 10-12% of the full cost, so 900 is quite realistic (also in IL). – Joe May 5 '17 at 17:36
  • @Joe Fair enough - I've (luckily) never needed COBRA so I'm not up to speed on its costs. – D Stanley May 5 '17 at 18:23
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    For whatever it's worth, COBRA is not a type of insurance or a specific plan. COBRA is an acronym for a law that includes a provision requiring employers of a certain size to extend eligibility to exiting employees for 18 months (up to 36 months in some circumstances). Essentially, employees (and some/all/only their already covered dependents) can elect to remain covered by the employer's plan, but will be responsible for the full premium plus an up to 2% administration fee. $900 for employee only coverage is high (but not impossible), this is probably the rate for employee + a dependent. – quid May 5 '17 at 19:19
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    Last time I checked on COBRA, it was hugely expensive, several times the cost of getting insurance on the private market. There may be some special cases where COBRA is of value, but normally it's useless. If your new job doesn't have insurance, get ordinary private insurance, not COBRA. If you need something for just a month or two to protect you against some disaster striking before the new insurance kicks in, you can get temporary hospitalization insurance very cheaply. My daughter just had an issue with switching insurance and I got her a temporary policy for like $100 for two months. ... – Jay May 5 '17 at 21:01
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Take the salary being offered for each job. Add to this the net value of any benefits that you care about. For example, if company A offers employer paid health insurance and B doesn't, than find out how much you would have to pay toward insurance at A, and compare that to how much it would cost you to get a private policy if you worked at B. Consider the value of health insurance, vacation time, employer contributions to a retirement plan, and any other insurance they may offer like disability or life insurance. Plus any other benefits that may be relevant in your case, like free parking or free donuts on Fridays or whatever. Add value of benefits to base pay to get a "total value of the compensation package".

I'd say to only include benefits that you actually care about. Like if you have no family that you need to provide for, they could offer a million dollar life insurance policy and maybe you don't care.

Some benefits may be difficult to value. Like if company A has a health plan that will only cost you $50 a month while company B has a health plan that costs you $200 a month, but B's plan covers a lot more, it could come down to how many claims you are likely to make. A few more days vacation may matter a lot to one person but not very much to another. Etc.

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