Even when building a speculative US budget, it is helpful to have a basic awareness of US salaries and compensation benchmarks and what is expected in terms of holiday or Paid Time Off (PTO).
When to think about this?
Even when building a speculative US budget, it is helpful to have a basic awareness of US salaries and compensation benchmarks and what is expected in terms of holiday or Paid Time Off (PTO). Whilst addressing these areas in this blog we have also included some less standard elements of benefits packages that often go hand in hand with working in a high growth small business. Hopefully these will give a sense for the variety and somewhat colourful range of benefits open to companies looking to create a specific culture beyond the more formal elements.
This blog is best read together with part two.
Key questions about salaries
- Does your business have a consistent policy and formula for how you decide salary levels?
- What data sets do you need access to in order to make an informed judgement?
- Given the financial impact of location on salary, are there commercial reasons why you are hiring in specific geographies?
- What is Workers’ Compensation and how should you budget for this?
- What compliance and filing obligations is there for a new employee?
Key questions about PTO
- What state regulations and requirements does your business fall under?
- How do you plan to check and monitor PTO being recorded?
- Are you aware of the legal implications of Holiday Debt?
- What plans have you made for maternity/paternity cover?
Key questions about Perks
- How well does your standalone benefits package communicate the culture?
- Are there additional benefits which can deal with specific challenges your business may have?
The US job market is normally cited as setting salary levels above those for similar roles in different geographies. However, it is hard to generalise as there are significant variances in the US depending on the city, role and level of seniority. For example, the average salary for a developer in Palo Alto is $120k compared to $80k in Texas.
The salary formula used by buffer is a very useful starting point to understanding the key salary considerations and the weightings between general factors e.g. location, cost of living, “role value adjustment” and experience. Buffer also publishes actual salaries of all staff and how the formula is applied here.
Using the Buffer salary methodology for a backend developer in San Francisco who has referred one additional hire (loyalty bonus) and opted for additional equity not cash:
$110k (base for SF) x 1.2 (advanced experience) x 1.05 (loyalty) + $0 (additional equity not cash) = $139 salary.
This data can however become outdated quickly and more readily updated sources such as those below, are recommended. For paid tools such as Radford (part of Aon), businesses can typically look to pay approximately £3k for use of their dataset. It is worth scrutinising the average size of the companies being used in such data sets as comparing salary expectations in a startup is very different to a publically listed business. One useful comment made by a portfolio company using such benchmarking tools was that you should be comparing your salary to whomever you feel you are competing with for talent (which may involve more established businesses than your own).
Our view is that any compensation philosophy should be fair, competitive, simple and reward performance. To achieve this some companies implement other salary formulae such as setting their salary as a percentile of the market rate e.g. given the spread of salary ranges in SF for senior developers, they will look to pay in the 60th Percentile. This enables them to be consistent and more accurately budget for headcount growth.
In terms of bonuses, we have not yet looked at this in any detail as this is very specific for particular roles e.g. sales versus engineering, but this is a large lever in building any accurate US budget. The same tools for salary research (e.g. Radford) typically include data on the proportion of variable to fixed compensation.
As part of the official process of hiring new employees, it is expected that the following documents are filed:
- Form I9, employee eligibility form
- Form W4, employee tax withholding calculation. Requirements for this vary by State
- Specific State reporting requirements will involve information being provided to the Department of Health and Human Services
- Under the federal law, reports must be submitted to the appropriate State agency within 20 calendar days of the date of hire, although some States may require shorter reporting windows
- Each year, Form W2, completed with any new employee SSN and identity details
- As this process is subject to change and updates, it is prudent to check with the IRS, city and State regulations
- It is worth noting that many payroll providers or PEOs will manage and advise on specific filing requirements.
One additional detail worth noting is Workers’ Compensation insurance, that is cash benefits and/or medical care for workers who are injured or become ill as a direct result of their job. Assistance is provided through wage replacement, medical treatment, rehabilitation and other benefits in the event that injury is sustained in the work place. Any employees who require such assistance must apply to the appropriate Workers Compensation Board which can typically be found in every major City. The Workers Compensation Board is a State agency responsible for managing any claims made. Employers pay for this insurance, and shall not require the employee to contribute to the cost of compensation.
Where to go next
- Check out our Dropbox with a range of date on service providers
- Free cost of living data from Numbeo
- IRS requirement for new employees are given here
- Tax withholding regulations shown state by state
- An overview of what is required and involved as part of Workers Compensation Insurance
- This blog is best read together with part two which can be found here
We hope this blog has provided a useful introduction to this area of US benefits. As you might expect, the US market is dynamic and evolving all the time, so we encourage all companies to take specialist advice to determine what is the optimal blend salary, PTO and perks to fit their needs and circumstances.
Thanks to Mark & Jed at Sequoia Benefits, Gregory at Kranz Associates and Jon at Amplience for your help and guidance in pulling this blog together.
This blog and those in this series are aimed at helping entrepreneurs learn about the US market, what it takes to start here, and ultimately what it takes to succeed here. Many of the topics (if not all) are complex and it is best to view these blogs as a basic introduction from which you the entrepreneur must triangulate to your own specific set of circumstances – and invariably it will be sensible and appropriate to seek third party professional advice.