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Quantifying the value of benefits

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  • Quantifying the value of benefits

    As a mental exercise, I'm trying to figure out how much total compensation I receive per hour (and using that as a baseline with which to value my time).  Here are some of the benefits I get with my employer and how much monetary value I think they have.  This turned out to be more difficult/insane than I thought, and it's likely riddled with bad assumptions and math.  But I decided to try it anyway and leave it open to feedback from others who are smarter and more knowledgeable.  I'm particularly weak on quantifying the benefits of being self-employed.

    401(k) match:  $10,800 per year.  I'm going to assume that it will be taxed someday at 22%, so really it's worth about $8424.

    Defined benefit plan:  If I stay long enough to vest, I get about $9k a year from this.  After tax this might be worth $7200 a year.

    Malpractice:  I'd probably pay about $5000 a year in my state.

    Annual CME:  $3750.  I do think I get pretty close to full value on this.

    457(b) availability:  I'm going to assume I can take this out for full value.  I think it has an income tax arbitrage of about 20%.  I am going to assume that if I quit working I would spend this money first; thus if it were in a taxable account it wouldn't pick up much in the way of LTCG, the effect of which I'll ignore for simplicity.  $18500 x .2 = $3700.

    HSA availability:  otherwise this money would go into a taxable account, and I'd have to pay 40% upfront in taxes + whatever the capital gains tax is.  $3400 x 0.4 = $1360.  If that remaining $2040 quadruples in a taxable account, and LTCG is 15%, that's an additional $918 in taxes.  However, HSA costs about $25 a year in fees.  So $1360 + $918 - $25 = $2253 a year?

    Health Insurance:  Tough to know what I'd pay for this out of pocket.  I suppose I'd most likely go with a health insurance ministry for about $150 per month + the catastrophic coverage fee ($40), which is $1840 a year.  However, I currently pay $168 a year, so the total benefit I'd put at $1840 - $168 = $1672

    Dental Insurance:  Also pretty difficult to price.  I wouldn't get dental insurance on my own, but not sure how I'd get dental care.  Go to a dental school and see students?  Go to Mexico?  I'm just going to pull $500 out of my rear.  I pay $60 a year in premiums now, so that makes the benefit $440.

    DEA:  $366 a year

    State license:  $130 a year

    Total benefits = $32.2k a year.  Just over 10% of my salary.

    However, there are some benefits I can only get by not being employed:

    Not being able to max out $55k 401(k) limit:  If I were working independently, I'd be putting in $18.5k in a solo 401k, just like now.  But how much would I contribute through the employer side?  I'm not sure.  I'm guessing my income would be dramatically lower.  Maybe I'd be able to add another $15k a year?  15k x .2 (income tax arbitrage) = $3k.  How much would I save in LTCG?  I'm going to assume money triples by withdrawal, so $3k x 3 x .15 = $1350.

    Schedule C tax breaks:  Not even going to try to guess this one.

    Lower tax on pass through income:  I don't think I'd save that much with this.  Probably would be in 22% bracket and would see a 20% deduction.  On a low income, that's about $3000.

    Not having to pay fees with employer 401(k)/403(b) - This is pretty negligible.  I pay about $84 in stupid fees to custodians.  Would love to get rid of them though.

    Total benefits as an IC (that I can think of):  $4434 (+ schedule C deductions)

    So the net benefits I think are about $28k, or $12.41 an hour.  I make about $95 after tax per hour now.  Actually I get paid on production, but that's what a similar salaried job in my organization would pay.  So I guess if I worked as an IC, it would need to pay $105-$110 after tax to really be comparable in compensation.

    Does that sound off?  How much would you value your benefits?

  • #2
    I have never had dental insurance.  You just go to the dentist.  It really is not that expensive.  On schedule C you can deduct things like WSJ, auto expenses, cellphone etc. I have been self employed so long that the concept of benefit is fuzzy.


    • #3
      This is a very helpful exercise when comparing job opportunities, particular private practice with academics. Most new docs have no clue how to value benefits and thus have a hard time comparing. Bravo for the effort.


      • #4
        I realized on the way home that I neglected the employer payroll taxes.  Those are worth almost $10k to a full time doctor.  I'd value them closer to 5k.

        hatton1 made me realize I forgot my cell phone reimbursement.  Though this is pretty minuscule.  I'm sure there are others I'll think of later.  Malpractice is the main thing I think I could deduct on Schedule C.  Taxes are the hardest part of figuring this out.

        Some (fairly obvious) takeaways:

        - Most employment benefits don't scale, which is one reason I think part-time work must be awesome.  I used a denominator of over 2000 hours to figure out the current value.  That makes me want to lower the denominator as much as possible.  I also assume that employers who are more generous with benefits are less willing to accommodate part-time work.

        - Conversely, more of the benefits you get from working for yourself do scale.  In my first post, I compared working full time for my current employer to what I think I'd get in doing part-time IC work (which is what I'd rather do), though I'll probably redo the math using full time IC work as the comparison, since that is more apples to apples.

        - Benefits don't have an absolute value, only a value relative to what you'd pay to replace them.  Particularly true for insurance and CME.