How to evaluate a job offer

Key takeaways it's more than just salary:

• Think about how a new job could impact your entire life including taxes, your commute, and your retirement.
• Intangible factors like a desire to move, the ability to advance your career, or quality of life are important too.
• Decide how much weight they should have in your job search.

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.

There's more to a job offer than just the salary. Think about benefits like health care, maternity or paternity leave, the opportunity for career advancement, work/life balance, vacation days, and the corporate culture. Every company is different, and some of these benefits may be more important to you than others.

Don't overlook some significant financial factors too. How do retirement and other benefits compare? Does the job mean moving to another state or city, where taxes and the cost of living can change the "real" value of a pay increase?

There may be other, less obvious costs. For example, you may lose some or all of what your employer contributed to your 401(k) or other retirement savings plan, if you weren't at your job long enough to be vested.

Here are 6 key things to consider.

1. Money

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?

2. Benefits

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.

Say you currently get a 4% employer match, meaning that if you contribute 4% of your salary to your 401(k), your company will contribute 4% on your behalf. For someone making $50,000 per year, that would mean an additional $2,000 of "free" money every year.

3. Taxes

Taxes are also key. If the new job involves moving to a new state, check the state income tax rate. Let's say you currently live and work in a state with no state income tax. The job offer is in a state that has an effective state 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.

Of course, there are some potential tax benefits to being self-employed. For example, if you itemize, you'll generally be able to deduct expenses like the cost of using a car for business purposes or maintaining a home office. So, be sure to weigh all the potential costs and benefits.

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. On the other hand, moving to a lower-cost area may mean a small raise may go a long way.

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.

Did you take a loan from your 401(k)? If so, you may have to repay the full amount after leaving the company, or else the outstanding balance will be treated as a taxable distribution and also may be subject to a 10% early withdrawal penalty.

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.

Deciding

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. Or maybe it's in a field that you would find more exciting and rewarding. 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.

Take the next step

Have more than one job offer?

Congratulations. We can help you with an apple-to-apples comparison, by showing how to evaluate the financial aspects of each offer.