Truths about money every employee should know 💸
Truths about money every employee should know 💸
The truth will set you free…but first, it will piss you off.
Our freelancers (and future freelancers!) got a lot of love last week in this ✨ stunning piece from
on how to set rates that protect your worth. This week, we’re focusing on how to talk about money when it isn’t your business.Whether you’re salaried, hourly, part-time or full-time, the money dynamic is different when you’re employed vs. consulted.
Employees also get paid differently and have additional benefits, all of which come with different expectations. What works for a freelancer in a money conversation won’t work for you. Which is why we’re here today!
Before jumping into this week’s newsletter, I strongly recommend you read last week’s edition. It will become clear why later! We’ll be here when you get back.
It is fine (more than fine) to be employed. Employment can bring stability, resources, direction, mentorship, and other perks. All of which we should take into consideration because it is part of your compensation. And you might be thinking, “Mmm, Rachel, but I’d rather get money than all of this stuff.” That’s where we’re going to focus today - how we as employees think about our compensation/money and how our employers plan for our compensation as a cost.
Fair warning: I’m going to drop some nauseating truths about how most businesses make money decisions. If you’re not totally read-in to work being work (and not a family, babysitter’s club, etc), it is going to piss you off. But then it will set you free.
Biz truth 1: Employees are expensive 💸
Trust - expensive is not a bad word here. It’s just true.
It starts with the human hours of the people who recruit you, interview you, and prepare your contract/offer. Cha-ching.
Once you start as an employee, you should be provided with what you need to do your work. So that’s laptops, hardware, uniform, office space, and all of the tech platforms you might need access to. Yep, there’s an extra cost for every “seat” you add to things like company-wide email, Slack/Teams, and even Google Docs.
It also means your employer is paying for the things to protect your work, like company-wide liability insurance in case you send $7.1 million to the wrong person, lawyers, tax advisors, accountants, etc. This includes chasing and getting paid money by your customers, so they can indeed pay you (freelancers know this struggle) and even holding insurance to protect against customers NOT paying you.
Depending on your country, employers also have to pay a monthly fee to the government for things like unemployment insurance, payroll fees, etc. This is on top of the monthly amount of money they send to you as a person (that the government takes its own chunk out of). So while your monthly salary pre-tax might be $4,000, for example, your employer actually had to send $4,500 from their bank account.
So when you ask for someone to be added to your team, it’s not just the salary that has to be factored in. It’s alllllllll of the costs. And sorry, but you can’t opt out of these.
I wish the “I don’t like being on Slack, so could I just not use it and get the extra $200 a year” argument worked but - it doesn’t. Nor does a promise not to invite legal action. Sort of like wedding insurance - you don’t want to pay for it, but if you need it, you REALLY need it.
Freelancers: Last week we talked about how you have to pay for these things yourself and/or do them yourself. Make sure you factor it into your rates!
Biz truth 2: An employee’s total compensation is not just salary 💶
To be clear, I don’t count anything I mentioned above as “compensation”. You getting a laptop to work from that they own or policies for covering their assets in case of an emergency is not compensation. 😂 Compensation is the total amount of “stuff” you get in exchange for the work you do as an employee.
Besides salary, what should be included here are things you get that you’d otherwise have to pay for.
🤸🏻♀️ What contribution, if any, does your employer make to your health insurance or other health things like a gym membership?
✈️ What programs, if any, do you get that give you discounts on normal life stuff - for example, travel?
📚 What about education and coaching - do they cover the costs for you to take courses, read books, etc.? Anything you can take to your next job with ease because it’s in your head. Yes, they benefit from this in the short term, but those long-term gains are all yours.
💰 What about stock or equity? If it’s listed on a stock exchange, you can literally put a numerical value to it (Amazon is known for this - huge stock allotments which, in good times, could mean a house downpayment. This year, they’ve already announced the “trimming” of this program. Goooood.)
✨ Tricked out offices and related benefits - a tricky one. Offering on-site free childcare? Perk. Buying lunch for you - as it’s money you’d normally have to spend that you now don’t have to. But offering to buy dinner at the office and Ubers home so you can work late on the reg? Not the vibe. That’s a cost of doing business because they get more hours from you.
🏖️ Days off. These are a perk in some countries and a cost of doing business in others. The difference is where they are optional vs. mandated. In other words - if your employer has to offer you paid holiday, they need to build that into the budget (see truth 1). But that isn’t the case everywhere. It should be. Regardless, I want you to think about days off as a cost, because a business sees them as a cost.
When you take a paid day off, you get paid like normal for that day (your salary doesn’t change). But you didn’t generate any money or deliver any work for the business that day. The business must balance its resources so you can get paid despite doing nothing that day. They may even have to pay someone else extra to cover your being away.
To borrow from last week’s math: If you make 80k a year, your salary (just salary) could cost them $310 per work day (to avoid complication, I’m not going to add on all the other costs I mentioned above). To hire a freelancer at your level for a day, it could cost them more than double (680). That’s nearly 1k they’re on the hook for that day just to pay your salary and cover your workload.
So! When you go to ask for a raise, you need to keep in mind: What you cost to employ (at the start and ongoing) and what amount of money is being spent on you for these other things.
PS. These perks are already available, and it’s pretty difficult (impossible) to gatekeep them without inviting legal action. So, no, they can’t just not offer you XYZ perk and pay you instead!
Biz truth 3: Every employee is evaluated on cost vs. value 📊
There’s a math model employers love to use which says, “You should deliver 4x your cost in value to the business.” I think that’s a bit like saying only 33% of your take-home should be spent on rent. With the general state of the world, inflation, etc, these numbers are definitely out of date.
I can’t tell you what your employer’s multiplier is - it depends on the leadership, the business model, the country, and the product.
But what I can say is: No employer is gonna be cool if you cost more than the value you bring to the table.
Especially if there’s another employee out there that can do what you do and can break even (at least).
PS. That’s why you have to understand and capture your value on a daily basis. Write it down. Bring it to your 1:1s. Don’t trust that someone is recording it for you. You gotta do it.
This truth is important because it leads us to our final one.
Biz truth 4: Businesses want to make money - not always for the reason you think 😬
Obviously, some businesses want to make money for their CEO and board to get paid billions. That’s the easy answer. The harder but more mature approach is to realise there are a lot of other reasons businesses are running this calculus on how to stay solvent. For reasons like…
They raised millions from investors and are being pressured to deliver returns so their backers get their percentage/payout
Their customers aren’t paying - literally, not paying for products or services already delivered
They get sued or are having to spend serious $$$ on a big issue they didn’t see coming
They’re trying to buy out a shit board member or executive who is costing serious cash, but their impact on morale is worse
They’re a large business that offers a lot of perks to stay competitive and not lose staff to a competitor
They’re a small business where every dollar matters - having any ‘cost sink’ could sink the entire company
Yes! These reasons might make you mad. But at least you can see your work environment in a far more realistic way - and then plan accordingly.
I am an employer in Europe, which means I have far more responsibilities than, say, an American employer. The way “business runs” in most places is not an excuse for abhorrent behavior and in some countries/continents it would be legit illegal.
That’s a whole other newsletter, but trust: It is BEYOND frustrating to see the humans at these huge businesses (the ones conducting layoffs of pregnant women amid record profits, using child labor, etc.) make their decisions. Because when they do, they contribute to a pretty shit “macro” environment for the rest of us. (Recessions, inflation, and general malaise in the whole world make it hard for all businesses to run).
But, in the spirit of not getting pessimistic, I don’t think these humans have all the power to define our entire reality. I think all of us can work on this - without their help, if necessary.
And why the hell not try, right? Until we have a better system*, we can’t get off this ride anyway. And by getting real friendly and familiar with the way your employer makes money, you’ll have what you need to protect yourself AND your fellow humans.
It starts with knowing the truths above. And when the time comes to ask for a raise, or when you need to assert your salary expectations in an interview, or when you are trying to figure out how to set a job salary range for a new hire, you will be better informed than you were before.
The small changes you can make, for you and your fellow humans, is 100% worth doing in our global movement to nicer work.
Go get free,
Rachel
*There’s so much to consider about the current model of shareholder capitalism and whether it is going to be replaced by something less damaging. It’s far-out to read about, but I highly recommend it. If not for any other reason than to understand how our current system works so you’re in the know.
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