Your first day on a new job involves a lot of jarring new experiences.
So when HR presents you with stacks of paperwork or online forms to fill out, we can’t blame you for glossing over them. But by doing that, you’re skipping one of the most important steps in starting a new job: taking advantage of what your employer has to offer.
Company benefits play a big role in your finances. Health care coverage, retirement plans and even smaller perks like transit cards all help you reach your money goals.
These are the most common benefits terms you might come across.
A 401(k) plan is a type of retirement savings account you typically get through an employer. There are two types your company might offer: a Traditional 401(k), in which you save a portion of your paycheck for retirement pre-tax (though you will pay taxes on that money when you withdraw it in retirement); or a Roth 401(k), into which you contribute after-tax money (so you won’t pay taxes on the withdrawals you make in retirement).
If you haven’t started saving for retirement yet, a 401(k) can be a convenient way to get into the habit since your contributions are directly deducted from your paycheck — you likely won’t miss the money that never hits your checking account. Many employers also offer a 401(k) match, meaning they’re willing to match a certain proportion of your contribution. If you don’t take advantage of the match, you’re basically walking away from free cash that could go toward your retirement.
You love your new job, but you also need to take a break from it once in a while. That’s where PTO, or “paid time off," comes in.
How employers treat PTO can vary by company. Some might dole out a specific number of days for each category of PTO (on top of the standard company holidays you probably already get, like Thanksgiving). For example, you might receive 10 days paid vacation, three paid sick days and two paid floating holidays (days you can use to celebrate a personal holiday, such as a religious celebration, that isn’t already provided off by your company). Other companies might pool all your PTO into one big number, which you can use however you want.
Depending on your employer’s policies, you may have to accrue your PTO, meaning you’ll have to work a set amount of time before you earn a certain number of days off. Others may allow you to take your PTO right away.
3. Health Insurance
Health care coverage is one of the most important benefits a company offers — and it can be one of the most complicated. Here are a few of the basics:
Premium: The amount your insurer charges to keep your coverage active. Typically, your company will cover some of that premium, while you’ll pay for a portion out of your paycheck. Some companies will pay the premium in full.
Deductible: The amount of your health care costs that you’ll have to pay out of your own pocket — say, $1,000 a year — before your insurer starts to foot the bill.
Copay: A flat fee you may have to pay for a covered medical service. For example, you might incur a $10 copay every time you visit your doctor outside of your annual checkup.
Coinsurance: The percentage of your health care bills your insurer will pay for you after you’ve met the deductible. For example, it may pay 80%, while you'll still be on the hook for 20%.
HDHP: A high-deductible health plan. It’s just what it sounds like: a type of insurance plan that has a higher deductible than most in exchange for a relatively low premium. You’ll typically get standard preventive care for free — such as an annual physical — but any bills beyond that you’ll have to pay out of pocket until you hit a high amount; say, $3,000 a year.
HSA: A health savings account. It lets you sock away pre-tax dollars to help pay for out-of-pocket medical expenses; your employer might even help pad the account with its own contributions. But there are annual limits to how much you can contribute to an HSA — currently $3,350 for an individual — and you can only open one if you’re covered by an HDHP.
FSA: A flexible savings account. It’s similar to an HSA in that it lets you sock away pre-tax money each year from your paycheck to cover health-related costs, but you’re not required to pair it with an HDHP. But unlike an HSA, the contribution limits are lower, at $2,550; it’s mostly “use it or lose it,” meaning you can’t roll over the funds to use for the following year; and you can get an FSA only if your employer offers one.
HMO: A health maintenance organization. This type of health plan is typically considered one of the most affordable options, thanks to its low premiums. The catch? An HMO will typically only cover services offered by health care providers that fall within their network.
PPO: Preferred provider organization. If you’d like more flexibility when it comes to choosing your doctor, you may be better off choosing a PPO. This is a type of health plan that allows you to see whichever doctor you like, but you’ll pay more out of pocket for using providers that don’t fall within their network. PPO premiums are, in general, higher than those for HMOs.
4. Commuter Benefits
Commuter benefits can’t make the traffic and congestion better, but they can help it cost a little less to get to work.
Some let you pay for your transit costs with pre-tax dollars, meaning you won’t have to pay taxes on the portion of your paycheck that goes toward your subway fare card, for example. Others might allow you to set up tax-exempt accounts that help pay for parking. Still other companies might provide shuttles to and from public transportation so that you can leave your car at home.
Generally speaking, commuter benefis are meant to encourage more environmentally friendly ways to get to work, improve productivity, or reduce costs and taxes for employees. If you’re already paying to commute, then take advantage of these perks.
5. Wellness Programs
Because wellness is such a broad concept, there’s no standard for what a typical program might look like.
Some companies might provide a partial reimbursement on a gym membership; others might give access to health coaches; and still others might hold in-house yoga sessions. And some companies may even extend the definition of wellness to other areas of your life. They might, for instance, offer access to financial planning programs. Or they may organize workshops that teach you how to manage stress.
6. Disability Insurance
Young and healthy people rarely believe a physical ailment will keep them from earning a paycheck, but think about this: A 20-year-old has a one in four chance of becoming disabled before they reach retirement, according to the Social Security Administration.
Disability insurance pays out a percentage of your salary if an illness or injury prevents you from working. There are generally two types: short-term, which typically lasts up to six months; and long-term, which can last for a number of years or up until your retirement age, depending on the policy. They’ll generally cover 60% of your income for the time you’re out, and you typically pay for a portion of the premium out of your paycheck.
If your employer offers disability coverage, it’s worth looking into because your company can likely take advantage of group discounted rates. In some cases an employer might even offer coverage at no cost to you.
7. Employee Stock Options
If your new job comes with employee stock options (ESOs), that means you have the opportunity to buy shares of your company’s stock at a preset price on a certain date. Employers may use ESOs as an incentive to their workers to help increase the value of the company, considering an employee could later profit if she sells the stock for more than what she paid for it.
You’ll likely have to wait for your stock options to vest, meaning you’ll have to work for the company for a certain amount of time before you have the right to the options you’re being offered. More on that below.
Vesting is the process in which you gain an employer-provided benefit over a certain period of time, and it doesn’t just refer to stock options. It can also apply to benefits like pensions, retirement contributions that employers provide, or profit sharing.
There are two main types of vesting. Cliff vesting means you won’t own any of the assets being offered to you until you’ve been at the company for a set period—but after you've reached a specified date, you will own them 100%. By contrast, graded vesting allots you a certain percentage of the benefit each year. For example, once your one-year work anniversary passes, you may be eligible to buy 20% of the stock options initially offered to you. In your second year, that may go up to 40%, and so on.
Vesting schedules vary widely, depending on your employer and which type of benefit they are being applied to. The idea, however, is vesting helps your company encourage you to stick with it for the long haul.