Withholding Benefits on New Hires

This’ll be a short post because I’m nearly speechless. It’s bad enough to be without a job. But it turns out people who are finally getting them are being told that there’s a waiting period before they can have benefits. Three, and in some cases, six months. Before they can have health insurance.

I’ve experienced this practice with 401(k)s, and that was obnoxious enough, with all the job hopping we’ve had to do in the past 10 years and the spottiness this has led to regarding our retirement savings. But health insurance? Um, what are people and their families supposed to do? It’s pretty hard as it is with companies not paying for dependent premiums, which can run  to outlays of $700-$900 per family per month (think of all the college savings that’s not happening because of this), which if you’re a teacher or work in public child welfare or something can eat close to half your salary.

Meanwhile, what are these families supposed to do if something happens in those first months on the job? And how are they covering prescription meds, especially if their savings have been exhausted by long periods of unemployment and COBRA expenditures? I was just wondering, because this new-hire situation just happened to someone I know and I’d never heard of it before.

I’ve got a feeling that #hcr is not going to address this issue.

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6 responses to “Withholding Benefits on New Hires

  1. As someone with firsthand knowledge of both the hiring process and how companies have to compete for talent, as well as the costs of health insurance for individuals as well as dependents, I have a theory as to why this is happening more and more:

    Let’s say that for a company to cover an individual with decent coverage these days costs about $600/mo (which it does in most group plans), and further that to cover their dependents would add another $900/mo…all that equates to $9.38/hr based on a standard 160 hour work month.

    So, when looking for prospective employees, companies can either offer, say, $30/hr and a wait for benefits/no coverage for dependents or $20.62/hr with full individual and family benefits.

    I probably don’t have to tell you how people tend to do the math — all they hear in 90+% of cases is the base salary number, even though in actuality, a salary of $20.62 with full benefits would be better for them in two ways: lower overall taxable personal income and receiving a benefit that they are not taxed on…but again, (most) people just don’t think this way — they’d rather have the money up front.

    The company too would rather pay the benefits / lower wage vs. a higher wage with no benefits, as they incur higher costs for the portion of the payroll tax and SSN contribution on the higher wage (and pay higher unemployment insurance) as well as risk have sick or injured workers who aren’t covered and who then either miss work or come in sick and get others sick.

    But the bottom line is that until job seekers learn what is truly in their best interests when comparing the sum total of pay + benefits and keep opting to take jobs with higher salaries but inferior benefits, employers will keep competing for employees using an approach that is to the detriment of both parties.

  2. Super big thanks for posting, Richard. That’s a great perspective. In the end, single payer is probably going to be the real solution. I agree there is probably a happy medium between salary and benefits. Though that still just cancels itself out, I think… it’s still just lower salary in the end… given that most of us feel salaries haven’t increased meaningfully in the past 10 years, while healthcare premiums certainly HAVE gone up (in the dotcom years, most of us had our family premims covered).

    And in the case that triggered this blog post, the salary is less than $40K, the health insurance wait is 3 months, the spouse premium is $400 per month, and additional dependents would bring it to $800. Nearly half the take-home pay. This is a highly experienced person in a public-service field who has been looking for a job for a long time and who is taking a pay cut of nearly $25K. Cuz that’s how it is.

  3. I guess I’m saying I don’t see how taking a lower salary is possible.

  4. Single payer is absolutely the way to go, and there are proven, workable models out there. Will we entitled Americans possibly have to wait longer for elective surgery? Yep, but nobody will be bankrupted by bad luck any more.

    Here though is why the balance between salary & health care premiums don’t cancel each other out:

    Let’s take the person you’re talking about making around $40k. They’ll owe about $5,200 in federal taxes before taking any deductions.

    But now suppose they make $800 less per month but have their premiums fully covered. They’ll be making about $9,600 less per year, which will save them over $1,400 in federal tax (and will save their employer almost $800 in payroll tax)

    There is a strong incentive therefore for both employer and employee to have the employer include benefits in lieu of pay, however this can only work if the employee understands the longer term picture and does not just opt to go to a competitor who “pays more” in terms of gross salary. As an employer, this is very frustrating.

  5. Okay, thank for helping me with the math . :) I do see your point from a raw data perspective.

    It’s not my observation that employees are getting lots of offers to choose among, though let’s hope that changes soon. The fact that they’re not is borne out by the salary examples we both give, which are all too low to live on, with or without benefits. The cost of living has not dropped.

    Once upon a time, over a decade ago, we had the same salaries we have now (and the lack of growth here is el-yuck, too…what was the average product manager making then? What is s/he making now? About the same), costs were a good bit lower, PLUS we had our families covered. So how is this not supposed to feel really rotten for everyone except, perhaps, those right out of school who don’t know? Especially when we’re working harder than we were then, or so it seems?

    I think this is a really great discussion… I hadn’t thought about how it might be advantageous to take benefits in lieu of salary as far as taxes go. Let’s just bring the salary up higher to begin with though. Maybe not as high as I want, but not as low as the numbers we’re talking here, either… :D

    Now for my next blog post. When, in this economy, is it ever going to be safe to ask for a raise? :D

  6. Pingback: Withholding Benefits on New Hires

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