Count The Costs
Out Of Date Warning
Languages change. Perspectives are different. Ideas move on. This article was published on August 7, 2009 which is more than two years ago. It may be out of date. You should verify that technical information in this article is still current before relying upon it for your own purposes.
Imagine that you’ve just been offered a brand new job. That’s fantastic! Now, make sure you do the math and find out what it will cost you.
“Cost me?” you ask. Yes. Accepting a new job is exciting and often beneficial, but there are costs associated with it that you must consider before you sign the offer and tell off your present employer. Some of these costs are obvious, but others are less obvious. These costs are rarely fully explored, because we have a tendency to see the grass as greener someplace else, and if the offer we receive is substantially better than our current one, we are more inclined to accept it. But not counting the costs would be a huge mistake.
Here are some of the costs you should consider when deciding whether you should accept a new position:
Can You Afford No Salary For A While?
Finding a new job before you leave the old one is the preferred strategy for changing positions, but doesn’t necessarily mean your paycheck will be uninterrupted. Sometimes you get lucky, but most of the time there’s some lag time. That lag time might mean going without a paycheck for up to two months.
Make sure that you can afford to do this without adding debt or defaulting on existing obligations. If you’ve built an emergency fund, this may be the sort of thing it calls for; you might consider also negotiating a signing bonus with your new company that will cover some of the lost income. Consider timing as well: you may be able to work with your new employer to time your departure close to the beginning of their new pay period and the end of your current company’s pay period to help ease the transition.
For those who think asking a potential new employer about their pay schedule, I’ve had this discussion with my friends before: they think it’s rude to ask your new employer about their pay schedule. I disagree – I think it’s a matter of financial security and prudence. As you’re considering whether to accept a position, understanding how it will affect your budget is a primary key factor. You should ask – but only after they’ve issued you a signed, formal offer.
Consider Required Repayments To The Previous Employer
Many employers have great benefits, like tuition reimbursement and continued training. Some employers even allow you to borrow against your vacation time before you’ve accrued it. Many companies offer a Section 125 plan, which allows you to pay for medical benefits over the course of the year (but makes the money available upfront). I encourage use of these benefits, but many of them come with attachments or agreements to repay them if you depart the company within a certain amount of time. Be very careful to understand these agreements and consider any that you may be under before you resign.
It can be expensive to get a large bill from your employer for benefits that you used but now have to repay, and this may affect your decision to leave. Of course, you can’t very well ask human resources for this information without drawing suspicion, so it is vitally important that you keep track of every piece of paperwork you sign for a company before you need it.
Consider The Effects On Retirement Savings
When you leave a company chances are good that you’ll either need to roll over your 401(k) account or continue paying for it out of your own pocket. The fees that the company paid on your behalf will stop, and you’ll become responsible for them. Depending on the amount in your account you may not be allowed to keep it where it is; check with your provider to see.
There is another hidden danger in leaving a company: the matching funds the company puts in along with your contribution may not vest for a certain period of time. So, if the company matches you dollar-for-dollar and you’ve accrued $10,000 in your 401(k), that may drop to $5,000 if half of those funds are not yet vested.
Be sure and also consider the tax implications, especially if you have them distribute any portion of your 401(k) money. Besides paying standard taxes, if you’re below the retirement age, you’ll pay a hefty penalty (typically around 10%) to the IRS. You do have options, though: you may be able to roll over your 401(k) to the new company, or roll it into a low-cost IRA without tax liabilities. Check with your accountant or tax professional.
Be Sure You Understand Insurance Implications
Something I always want to account for is insurance – health, life, dental, vision. You’ll want to consider a number of things when switching employers.
First, you want to know when their coverage kicks in, and when your existing coverage will expire. Obviously you want to avoid as much of a gap as possible, and most employers can start coverage pretty straight away, either on the first day of employment or the first day of the next month. However, if there’s a gap in coverage – even a week- and you have a medical emergency during that period, the results can be disastrous.
If your current employer is larger than 25 employees you qualify for continued coverage under COBRA, albeit at the full premium. Still, this might be an option, especially if you have regular prescriptions that need to be filled or your company won’t enroll you in their policy right away.
Also consider the new premium versus the coverage amounts. Different employers pay for different levels of coverage, and obviously some are better than others. Make sure that you can still see your doctor with the new plan, and you’ll want to make sure that the coverage it offers is similar in nature to the coverage you’re leaving (hopefully its better). Also, if the premium will be higher, calculate how that will affect your budget.
Finally, be sure to consider deductibles and copays that you’ll owe, especially if you have medical conditions that require frequent visits to a physician. Just because you have insurance doesn’t mean that you’ll escape all costs entirely, and switching plans might result in hidden or unknown costs that you didn’t anticipate, rendering the switch to a new employer to be worse than staying at your current one.
Know What It Will Cost To Commute
I used to work down the street from my house, and I would walk to work. When I switched jobs, I moved to a position 18 miles from home, and obviously have to commute every day. Lots of people ask me why I did it – wouldn’t it cost me more? Well, no: there were certain benefits that the new employer offered that the old one did not that made it less costly to commute. One of the biggest was the chance to work with highly skilled professionals who would be able to mentor me and who placed a high level of emphasis on quality development and best practices. I made the switch and I couldn’t be happier.
That’s obviously a great situation, but it doesn’t happen for everyone. Make sure you know what it will cost to commute every day to the new job, and how that affects your budget. If you add $1,000 a year to your salary but $1,200 a year in commuting expenses, you’re not helping yourself. Consider both the financial factors and the “soft” factors – peace of mind, happiness, challenge, work environment, etc.
Consider The Cost To Goodwill
We like to think of our jobs as professional enterprises where we do a job and they write us a check, and we go about our daily lives. But that’s simply not true. There’s relationship, there’s give-and-take, there’s mentorship and there’s camaraderie. If you’ve developed relationships, or accepted the benefit of the doubt from people you work with, they may see your departure as insulting, rude, or hurtful.
Make sure that you won’t burn bridges when you leave. Or, if you’re going to burn bridges, be sure that the benefits outweigh the costs in a massive scale. Sometimes you can’t avoid leaving a place, and sometimes you have to do it, for your sanity, for your family, for your future. You especially want to try and retain relationships, in case the new position doesn’t work out, or you ever need a reference, or you’re friends with people and you want to see them still after you’re no longer coworkers.
But burning bridges will hurt you. Most communities are tight-knit, and your professional reputation is often the only thing many people know about you before they make decisions about you and your career. If you have a reputation as someone who moves around, hurts others, is disloyal, or otherwise is unprofessional, this will hurt your career in the long run. Be sure that you protect your career and yourself by doing everything you can to remain professional and doing your job just as well as you were the day before you decided to move on.
Starting a new position can be very exciting, and often offers opportunity you weren’t getting before. It’s costs may be outweighed by the benefits, but you must do the analysis and make that determination yourself.
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