Consider some financial factors and then compare the new job to your current job with our evaluator.
Three questions to answer before taking a new job
- Will my benefits change?
- Will my taxes change?
- Will my cost of living change?
Got a sweet new job offer? Is it working at the company of your dreams? Or a big jump in salary? Sounds great, right? Stop. Before you negotiate or accept the offer, take the time to see how changing jobs could affect your lifestyle and your financial picture.
Here are some things to consider.
Compensation is often more than just a base salary. Is there a cash bonus or commissions? While your base salary is generally fixed, a bonus and commissions aren’t guaranteed and may vary from year to year. Will you be paid for overtime? Does the company offer stock compensation?
Many employers provide a 401(k) match program, profit sharing, tuition reimbursement, life insurance, flexible spending accounts, health insurance, disability insurance, and paid time off. These benefits can really add up, and it is important to take them into account when comparing a job offer to your current position.
Taxes are also key. If the new job involves moving to a new state, check the state income tax rate. Let's say you live and work in the state that has an effective income tax rate of 5%. For a person earning $40,000, that is an additional $2,000 a year in taxes. Some areas have a local municipal tax as well.
Your payroll taxes may change too. What if you are going from a wage-earning employee1 to a self-employed contractor2—or vice versa? Payroll taxes on workers’ wages include 15.3% for Social Security and Medicare. Your company pays half of these payroll taxes. As a contractor, however, you are the employee and the employer, which means you’ll have to pay all those taxes.
4. The cost of living
Relocating for a new job may come with a price besides the cost of the move itself. In addition to the previously mentioned tax considerations, the cost of living in a new location may increase or decrease the real value of your compensation package.
Let's say you are making $50,000 in your current job, and you have a job offer in another state for $60,000. The cost of living in the new state is 50% higher, so you would have to earn about $75,000 in your new state to afford the same lifestyle. The new job could effectively mean a pay cut.
5. The cost of leaving a job
Leaving your current job may also cost you, so to speak. You may lose what your employer contributed to your 401(k), stock options, or other stock compensation—or all three—if you weren’t at the job long enough to be vested.
For example, that $10,000 your company contributed to your 401(k) plan may vest at 20% per year over five years. So if you leave after the end of the first year, you could keep only $2,000 of the contribution. After two years, you could keep 40%, and so on.
6. Other costs and considerations
If you have to relocate, you may have to pay for moving costs, real estate agent fees, or temporary housing. Some companies cover these costs for new employees, but not all.
Run your numbers.
Now that you have a sense of what to keep in mind when weighing a new job offer, compare some financial factors with our job-offer evaluator.
Of course, your decision shouldn't be just financially oriented. Maybe the new job is in a place where you really want to live. Maybe it offers a chance to advance your career. Consider the corporate culture and who you would be working for and with. Vacation days, health care benefits, and maternity or paternity leave are also valuable benefits that may be important to you. What will the commute be like, and how much will it cost? Will you be working long hours? In the end, when making a decision on a job offer, think beyond the paycheck.