Before you decide to leave your job for a better offer, read the fine print carefully. Cost-to-company packages are becoming a popular form of remuneration, but it can leave you with a nasty shock. Debbie Goodman, MD of Jack Hammer Executive Headhunters, says that when candidates are considering a career move and are then required to compare their current package with the one on offer, it becomes evident that most people are rather confused about what benefits are included in and excluded from their ”cost to company”.
”When an offer is made to a candidate, it may sound very competitive with their current package, but depending on how the package is structured and the value of the benefits included in the cost to company offer, the net amount may not be as competitive as what the candidate is currently earning.”
Doeling Lessing, tax adviser at legal firm Werksmans, says that initially cost-to-company packages allowed employees to structure their salaries more tax efficiently by benefiting from car, cellphone and entertainment allowances. Now that SARS has clamped down on these fringe benefits, there is not really much benefit to the employee on cost-to-company packages.
Yet, Anastasia Vatalidis, director of the labour department at Werksmans, says that more and more companies are moving to cost-to-company packages because they need to know how much their employees are costing them. It also protects them against sudden increases in costs like medical aid. But how much you cost them does not translate into cash in your hand.
”Most people are used to simply receiving a monthly salary and do not know how much they actually cost the employer. Over and above the basic salary there is pension, medical aid, contributions to UIF and the skills development levy and sometimes parking,” says Vatalidis. What a cost-to-company package does is include all of these extra costs. So when you are made a job offer, the number you see on the contract actually includes all these additional costs, which will come off before you are paid your basic salary.
Vatalidis says that often an employee is not aware of these deductions and that half, if not more, goes to employer costs and tax. Vatalidis says that because cost-to-company packages are not generic — some may include parking costs while others exclude statutory costs like UIF — before accepting a job offer it is important to sit down with the financial manager and work out your take home salary so that you can compare it accurately with your current package.
She says it is also important to remember that with a cost to company package your 13th cheque is included in the annual salary amount. This means that your 13th cheque is not an additional payment but simply that your annual salary is effectively paid to you over 13 months rather than 12 months. This means that you are able to select whether you want a higher monthly salary with no 13th cheque or if you rather have a little lump sum at the end of the year with a lower monthly take home pay.
Vatalidis says that employees must also be aware of the risk of increases in costs because they will bear the full burden of these such as medical aid and life and disability cover.
When comparing job offers, what really matters is your take home pay because that is what puts food on the table and a roof over your head. ”Outstanding medical, pension and other benefits may be attractions, but I have yet to see a headhunted candidate take an offer where the net package is similar or less than his current pay, but the additional benefits are greater than his current benefits,” says Goodman.
New salary could be a rude surprise
If you are currently on a salary of R200 000 plus pension and medical aid and you decide to accept an offer of R300 000 that is structured on a cost-to-company basis, you may be very surprised at your new take-home pay.
On the current salary, assuming an average tax rate of 30%, you would take home around R11 500 and possibly receive a 13th cheque. If you are offered R100 000 more but it excludes pension and medical aid, UIF and skills development levies, and you opt for a 13th cheque, the additional costs as well as tax would mean that your take home pay could increase by less than R2 000 a month, even though, on paper, you are earning R8 000 more a month.