Employee compensation in the United States

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Wages in the United States
   Nominal wages

Employer compensation in the United States refers to the cash compensation and benefits that an employee receives in exchange for the service they perform for their employer. Approximately 93% of the working population in the United States are employees earning a salary or wage. [1]

Contents

Typically, cash compensation consists of a wage or salary, and may include commissions or bonuses. Benefits consist of retirement plans, health insurance, life insurance, disability insurance, vacation, employee stock ownership plans, etc.

Compensation can be fixed and/or variable, and is often both. Variable pay is based on the performance of the employee. Commissions, incentives, and bonuses are forms of variable pay. [2]

Benefits can also be divided into company-paid and employee-paid. Some, such as holiday pay, vacation pay, etc., are usually paid for by the firm. Others are often paid, at least in part, by employees—a notable example is medical insurance. [2]

Compensation in the US (as in all countries) is shaped by law, tax policy, and history. Health insurance is a common employee benefit because there is no government-sponsored national health insurance in the United States, and premiums are deductible on personal income tax. 401(k) accounts are a common employer organized program for retirement savings because of their tax benefits.

Salaries, wages, commissions

Salary, bonuses, and non-equity incentives are often called "Total Cash Compensation". [3] [4]

Wages

Wages adjusted for inflation in the US from 1964 to 2004 US Real Wages 1964-2004.gif
Wages adjusted for inflation in the US from 1964 to 2004
Unemployment compared to wages Unemployment to wages.png
Unemployment compared to wages

Wage data (e.g. median wages) for different occupations in the US can be found from the US Department of Labor Bureau of Labor Statistics, [5] broken down into subgroups (e.g. marketing managers, financial managers, etc.) [6] by state, [7] metropolitan areas, [8] and gender. [9]

In the United States, wages for most workers are set by market forces, or else by collective bargaining, where a labor union negotiates on the workers' behalf. The Fair Labor Standards Act (FLSA) establishes a minimum wage at the federal level that all states must abide by, among other provisions. Fourteen states and a number of cities have set their own minimum wage rates that are higher than the federal level. For certain federal or state government contracts, employers must pay the so-called prevailing wage as determined according to the Davis–Bacon Act or its state equivalent. Activists have undertaken to promote the idea of a living wage rate which accounts for living expenses and other basic necessities, setting the living wage rate much higher than current minimum wage laws require.

"The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek." [10]

Salaries

In the United States, the distinction between periodic salaries (which are normally paid regardless of hours worked) and hourly wages (meeting a minimum wage test and providing for overtime) was first codified by the Fair Labor Standards Act of . Five categories were identified as being "exempt" from minimum wage and overtime protections, and therefore salariable—executive, administrative, professional, computer, and outside sales employees. [11] Salary is generally set on a yearly basis. (These employees must be paid on a salary basis above a certain level, $455 per week as o, though some professions – "Outside Sales Employees", teachers and practitioners of law or medicine—are exempt from that requirement. [12] )

Executive compensation

"Executive compensation" has its own set of regulations and lacks many of the tax benefits of other employee compensation because it exceeds their income limits.

Equity compensation

Employee stock options

Employee stock options [13] are call options on the common stock of a company. Their value increases as the company's stock rises. Employee stock options are mostly offered to management with restrictions on the option (such as vesting and limited transferability), in an attempt to align the holder's interest with those of the business shareholders. Options may also be offered to non-executive level staff, especially by businesses that are not yet profitable, insofar as they may have few other means of compensation. They may also be remuneration for non-employees: suppliers, consultants, lawyers, and promoters for services rendered.

There is usually a period before the employee can "vest", i.e. sell or transfer the stock or options. Vesting may be granted all at once ("cliff vesting") or over a period time ("graded vesting"), in which case it may be "uniform" (e.g. 20% of the options vest each year for 5 years) or "non-uniform" (e.g. 20%, 30%, and 50% of the options vest each year for the next three years).

Types of employee stock options

In the U.S., stock options granted to employees are of two forms, that differ primarily in their tax treatment. They may be either:

Other equity-based compensation

Besides stock options, other forms of individual equity compensation [14] include:

Taxation of employee stock options in the United States

Because most employee stock options are non-transferable and are not immediately exercisable though they can be readily hedged to reduce risk, the IRS considers that their "fair market value" cannot be "readily determined", and therefore "no taxable event" occurs when an employee receives an option grant. Depending on the type of option granted, the employee may or may not be taxed upon exercise. Non-qualified stock options (those most often granted to employees) are taxed upon exercise. Incentive stock options (ISO) are not, assuming that the employee complies with certain additional tax code requirements. Most importantly, shares acquired upon exercise of ISOs must be held for at least one year after the date of exercise if the favorable capital gains tax are to be achieved.

However, taxes can be delayed or reduced by avoiding premature exercises and holding them until near expiration day and hedging along the way. The taxes applied when hedging are friendly to the employee/optionee.

Generally accepted accounting principles

According to US generally accepted accounting principles in effect before June 2005, stock options granted to employees did not need to be recognized as an expense on the income statement when granted, although the cost was disclosed in the notes to the financial statements. This allows a potentially large form of employee compensation to not show up as an expense in the current year, and therefore, currently overstate income. Many assert that over-reporting of income by methods such as this by American corporations was one contributing factor in the Stock Market Downturn of 2002.

Excess tax benefits from stock-based compensation

This item of the profit-and-loss (P&L) statement of companies' earnings reports is due to the different timing of option expense recognition between the GAAP P&L and how the IRS deals with it, and the resulting difference between estimated and actual tax deductions.

At the time the options are awarded, GAAP requires an estimate of their value to be run through the P&L as an expense. This lowers operating income and GAAP taxes. However, the IRS treats option expense differently, and only allows their tax deductibility at the time the options are exercised/expire and the true cost is known.

This means that cash taxes in the period the options are expensed are higher than GAAP taxes. The delta goes into a deferred income tax asset on the balance sheet. When the options are exercised/expire, their actual cost becomes known and the precise tax deduction allowed by the IRS can then be determined. There is then a balancing up event. If the original estimate of the options' cost was too low, there will be more tax deduction allowed than was at first estimated. This 'excess' is run through the P&L in the period when it becomes known (i.e. the quarter in which the options are exercised). It raises net income (by lowering taxes) and is subsequently deducted out in the calculation of operating cash flow because it relates to expenses/earnings from a prior period.

Benefits

The term "fringe benefits" was coined by the War Labor Board during World War II to describe the various indirect benefits which industry had devised to attract and retain labor when direct wage increases were prohibited.

Employee benefits in the United States might include relocation assistance; medical, prescription, vision and dental plans; health and dependent care flexible spending accounts; retirement benefit plans (pension, 401(k), 403(b)); group-term life and long term care insurance plans; legal assistance plans; adoption assistance; child care benefits; transportation benefits; and possibly other miscellaneous employee discounts (e.g., movies and theme park tickets, wellness programs, discounted shopping, hotels and resorts, and so on). Companies provide benefits that go beyond a base salary figure for a number of reasons: To raise productivity and lower turnover by raising employee satisfaction and corporate loyalty, take advantage of deductions, credits in the tax code. [21] Wellness programs can also lower health insurance costs.

Many employer-provided cash benefits (below a certain income level) are tax-deductible to the employer and non-taxable to the employee. Some fringe benefits (for example, accident and health plans, and group-term life insurance coverage (up to US$50,000) (and employer-provided meals and lodging in-kind, [22] ) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax in the United States. Some function as tax shelters (for example, flexible spending accounts, 401(k)'s, 403(b)'s). Fringe benefits are also thought of as the costs of keeping employees other than salary. These benefit rates are typically calculated using fixed percentages that vary depending on the employee’s classification and often change from year to year.

Executive benefits (e.g. golden handshake and golden parachute plans), exceed this level and are taxable.

from US Department of Labor, Bureau of Labor Statistics, National Compensation Survey (NCS), March 2011 Access to paid leave benefits.png
from US Department of Labor, Bureau of Labor Statistics, National Compensation Survey (NCS), March 2011
Benefits for workers earning wages in the highest and lowest 10th percent of private industry employees. From US Department of Labor, Bureau of Labor Statistics, National Compensation Survey (NCS), March 2011 Access to paid leave benefits, high and low income workers.png
Benefits for workers earning wages in the highest and lowest 10th percent of private industry employees. From US Department of Labor, Bureau of Labor Statistics, National Compensation Survey (NCS), March 2011

Full-time and high wage workers are much more likely to have benefits, as the charts to the right indicates. [23]

Benefits can be divided into as company-paid and employee-paid. Some, such as holiday pay, vacation pay, etc., are usually paid for by the firm. Others are often paid, at least in part, by employees. A notable example is medical insurance, which has risen in cost dramatically in recent decades and been shifted to employees by many American employers. [2] Even when paid entirely by employees, these programs may still provide value to employees and be called benefits because their cost may be considerably lower than that of equivalent non-employer-sponsored programs, thanks to employers having negotiated discounts with providers.

Some benefits, such as unemployment and worker's compensation, are federally required and arguably can be considered a right, rather than a benefit. [2]

American corporations often offer cafeteria plans to their employees. These plans would offer a menu and level of benefits for employees to choose from. In most instances, these plans are funded by both the employees and by the employer(s). The portion paid by the employees is deducted from their gross pay before federal and state taxes are applied. Some benefits would still be subject to the Federal Insurance Contributions Act tax (FICA), such as 401(k) [24] and 403(b) contributions; however, health premiums, some life premiums, and contributions to flexible spending accounts are exempt from FICA.

Perks

The term perks is often used colloquially to refer to those benefits of a more discretionary nature. Often, perks are given to employees who are doing notably well and/or have seniority. Common perks are take-home vehicles, hotel stays, free refreshments, leisure activities on work time (golf, etc.), stationery, allowances for lunch, and—when multiple choices exist—first choice of such things as job assignments and vacation scheduling. They may also be given first chance at job promotions when vacancies exist.

Pensions

Traditional pensions, known as Defined benefit pension plans, provides employees with a guaranteed paycheck (or lump sum) in retirement. [25] The benefit is usually "defined" by a formula based on the employee's earnings history, tenure of service and age, and not depending on investment returns. Because of the high cost and responsibility of the employer to finance the plan, in recent years many companies have phased out their pension plans sometimes replacing them with defined contribution deferred compensation plans, which are defined by contribution. [25]

Deferred compensation

Qualifying and non-qualifying

Deferred compensation is any arrangement where an employee receives wages after they have earned them. Deferred compensation plans in the US often have the benefit of employers' matching all or part of the employee contribution.

In the US, Internal Revenue Code section 409A regulates the treatment for federal income tax purposes of “nonqualified deferred compensation”, the timing of deferral elections and of distributions. [26]

Qualifying

A "qualifying" deferred compensation plan is one complying with the ERISA, the Employee Retirement Income Security Act of 1974. Qualifying plans include 401(k) (for non-government organizations), 403(b) (for public education employers), 501(c)(3) (for non-profit organizations and ministers), and 457(b) (for state and local government organizations) [27] Most medium-sized and large companies offer 401(k)’s. [25]

ERISA, has many regulations, one of which is how much employee income can qualify. In an ERISA-qualified plan (like a 401(k) plan), the company's contribution to the plan is tax deductible to the plan as soon as it is made, but not taxable to the individual participants until it is withdrawn. So if a company puts $1,000,000 into a 401(k) plan for employees, it writes off $1,000,000 that year. If the company is in the 25% bracket, the contribution costs it only $750,000 (with $250,000 saved in taxes).

Employee benefits provided through ERISA are not subject to state-level insurance regulation like most insurance contracts, but employee benefit products provided through insurance contracts are regulated at the state level. [28] However, ERISA does not generally apply to plans by governmental entities, churches for their employees, and some other situations. [29]

The tax benefits in qualifying plans were intended to encourage lower-to-middle income earners to save more, high income-earners already having high savings rates. As of 2008, the maximum qualifying annual income was $230,000. So, for example, if a company declared a 25% profit sharing contribution, any employee making less than $230,000 could deposit the entire amount of their profit sharing check (up to $57,500, 25% of $230,000) in their ERISA-qualifying account. For the company CEO making $1,000,000/year, $57,500 would be less than 1/4 of his $250,000 profit sharing cut. It is for high earners like the CEO, that companies provide "DC" (i.e. deferred compensation plans).

Non-qualifying

A nonqualified deferred compensation (NQDC) plan is a written agreement between an employer and an employee wherein the employee voluntarily agrees to have part of their compensation withheld by the company, invested on their behalf, and given to them at some pre-specified point in the future. [30] NQDC refers to a specific part of the tax code that provides a special benefit to corporate executives and other highly compensated corporate employees. Non-Qualified Deferred Compensation is also sometimes referred to as deferred comp (which technically would include qualifying deferred comp but the more common use of the phrase does not), DC, non-qualified deferred comp, NQDC or golden handcuffs. [31]

"Most large companies" have a NQDC that takes compensation until some future date. Income tax is deferred until the recipient receives payment. Depending on the firm and employee, DC can be optional or mandatory, contributions may come only from salary, or may allow gains from stock options. At some firms it is mandatory for all salary in excess of $1 million/year. The benefit feature of NQDC plans vary. Some plans provide matching contributions, which can be awarded at the board's discretion or by a formula. The contributions in the plan may earn a guaranteed minimum rate of "investment," or at a premium over the market rate. [32]

Nonqualifying differs from qualifying in that:

  1. Employers may also pick and choose which employees they provide deferred compensation benefits to rather than being required to offer the same plan to all employees. [27]
  2. NQDC has the flexibility to treat different employees differently. The benefit promised need not follow any of the rules associated with qualified plans (e.g. the 25% or $44,000 limit on contributions to defined contribution plans). The vesting schedule can be whatever the employer would like it to be. [30]
  3. Companies may provide deferred compensation benefits to independent contractors, not just employees.
  4. The employer contributions are not tax deductible [27]
  5. Employees must pay taxes on deferred compensation at the time such compensation is eligible to be received (not just when it is actually drawn out). [27]

Deferred comp is only available to senior management and other highly compensated employees of companies.[ citation needed ] Although DC is not restricted to public companies, there must be a serious risk that a key employee could leave for a competitor and deferred comp is a "sweetener" to try to entice them to stay.[ citation needed ] If a company is closely held (i.e. owned by a family, or a small group of related people), the IRS will look much more closely at the potential risk to the company.[ citation needed ]

  1. Assets in plans that fall under ERISA (for example, a 401(k) plan) must be put in a trust for the sole benefit of its employees. If a company goes bankrupt, creditors are not allowed to get assets inside the company's ERISA plan. Deferred comp, because it does not fall under ERISA, is a general asset of the corporation. While the corporation may choose to not invade those assets as a courtesy, legally they are allowed to, and may be forced to, give deferred compensation assets to creditors in the case of a bankruptcy. A special kind of trust called a rabbi trust (because it was first used in the compensation plan for a rabbi) may be used. A rabbi trust puts a "fence" around the money inside the corporation and protects it from being raided for most uses other than the corporation's bankruptcy/insolvency. However, plan participants may not receive a guarantee that they will be paid prior to creditors being paid in case of insolvency.
  2. Federal income tax rates change frequently. Deferred compensation has tax benefits if the income tax rates are lower when the compensation is withdrawn then when it was "deposited" (i.e. at the time it was deferred), and tax disadvantages if the reverse is true.

Deferred comp agreements

Plans are usually put in place either at the request of executives or as an incentive by the Board of Directors. They're drafted by lawyers, recorded in the Board minutes with parameters defined. There is a doctrine called constructive receipt, which means an executive cannot have control of the investment choices or the option to receive the money whenever he wants. If he is allowed to do either of those 2 things or both, he often has to pay taxes on it right away.[ citation needed ]

Taxation

In a deferred comp plan, unlike an ERISA (such as a 401(k) plan), the company does not get to deduct the taxes in the year the contribution is made, they deduct them the year the contribution becomes non-forfeitable. For example, if ABC company allows SVP John Smith to defer $200,000 of his compensation in 1990, which he will have the right to withdraw for the first time in the year 2000, ABC puts the money away for John in 1990, John pays taxes on it in 2000. If John keeps working there after 2000, it does not matter because he was allowed to receive it (or "constructively received") the money in 2000.

Other circumstances around deferred comp. Most of the provisions around deferred comp are related to circumstances the employee's control (such as voluntary termination), however, deferred compensation often has a clause that says in the case of the employee's death or permanent disability, the plan will immediately vest and the employee (or estate) can get the money.

Performance-linked incentives

Long-term incentives are paid five or at least three years out. [33] They are often a mixture of cash and shares of stock in the company, or some other type of equity compensation such as stock options, which are almost always subject to restrictions based on time, performance, or both, known as vesting. [34]

Clawback of "faithless servant" employee compensation

Under the faithless servant doctrine, which is a doctrine under the laws of a number of states in the United States, and most notably New York State law, an employee who acts unfaithfully towards his or her employer must forfeit all compensation received during the period of disloyalty, which compensation is subject to clawback by the employer. [35] [36] [37] [38] [39]

Related Research Articles

In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodic employee contributions come directly out of their paychecks, and may be matched by the employer. This legal option is what makes 401(k) plans attractive to employees, and many employers offer this option to their (full-time) workers. 401(k) payable is a general ledger account that contains the amount of 401(k) plan pension payments that an employer has an obligation to remit to a pension plan administrator. This account is classified as a payroll liability, since the amount owed should be paid within one year.

In the United States, a 403(b) plan is a U.S. tax-advantaged retirement savings plan available for public education organizations, some non-profit employers (only Internal Revenue Code 501(c)(3) organizations), cooperative hospital service organizations, and self-employed ministers in the United States. It has tax treatment similar to a 401(k) plan, especially after the Economic Growth and Tax Relief Reconciliation Act of 2001. Both plans also require that distributions start at age 72 (according to the rules updated in 2020), known as Required Minimum Distributions (RMDs). Distributions are typically taxed as ordinary income.

In law, vesting is the point in time when the rights and interests arising from legal ownership of a property are acquired by some person. Vesting creates an immediately secured right of present or future deployment. One has a vested right to an asset that cannot be taken away by any third party, even though one may not yet possess the asset. When the right, interest, or title to the present or future possession of a legal estate can be transferred to any other party, it is termed a vested interest.

<span class="mw-page-title-main">Employee Retirement Income Security Act of 1974</span> U.S. tax and labor law

The Employee Retirement Income Security Act of 1974 (ERISA) is a U.S. federal tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax effects of transactions associated with employee benefit plans. ERISA was enacted to protect the interests of employee benefit plan participants and their beneficiaries by:

Universal life insurance is a type of cash value life insurance, sold primarily in the United States. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level premiums throughout the insured's lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table. That not only allows for easy comparison of costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since cash is of no consequence.

The 457 plan is a type of nonqualified, tax advantaged deferred-compensation retirement plan that is available for governmental and certain nongovernmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pretax or after-tax (Roth) basis. For the most part, the plan operates similarly to a 401(k) or 403(b) plan with which most people in the US are familiar. The key difference is that unlike with a 401(k) plan, it has no 10% penalty for withdrawal before the age of 55. These 457 plans can also allow independent contractors to participate in the plan, where 401(k) and 403(b) plans cannot.

<span class="mw-page-title-main">Retirement plans in the United States</span>

A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).

<span class="mw-page-title-main">Employee benefits</span> Non-wage compensation provided to employees in addition to normal wages or salaries

Employee benefits and benefits in kind, also called fringe benefits, perquisites, or perks, include various types of non-wage compensation provided to employees in addition to their normal wages or salaries. Instances where an employee exchanges (cash) wages for some other form of benefit is generally referred to as a "salary packaging" or "salary exchange" arrangement. In most countries, most kinds of employee benefits are taxable to at least some degree. Examples of these benefits include: housing furnished or not, with or without free utilities; group insurance ; disability income protection; retirement benefits; daycare; tuition reimbursement; sick leave; vacation ; social security; profit sharing; employer student loan contributions; conveyancing; long service leave; domestic help (servants); and other specialized benefits.

A traditional IRA is an individual retirement arrangement (IRA), established in the United States by the Employee Retirement Income Security Act of 1974 (ERISA). Normal IRAs also existed before ERISA.

Compensation of employees (CE) is a statistical term used in national accounts, balance of payments statistics and sometimes in corporate accounts as well. It refers basically to the total gross (pre-tax) wages paid by employers to employees for work done in an accounting period, such as a quarter or a year.

Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned. Examples of deferred compensation include pensions, retirement plans, and employee stock options. The primary benefit of most deferred compensation is the deferral of tax to the date(s) at which the employee receives the income.

<span class="mw-page-title-main">Defined contribution plan</span> Type of retirement plan

A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. The most common type of defined contribution plan is a savings and thrift plan. Under this type of plan, the employee contributes a predetermined portion of his or her earnings to an individual account, all or part of which is matched by the employer.

Stock appreciation rights (SAR) is a method for companies to give their management or employees a bonus if the company performs well financially. Such a method is called a 'plan'. SARs resemble employee stock options in that the holder/employee benefits from an increase in stock price. They differ from options in that the holder/employee does not have to purchase anything to receive the proceeds. They are not required to pay the (options') exercise price, but just receive the amount of the increase in cash or stock.

Golden handcuffs, a phrase first recorded in 1976, refers to financial allurements and benefits that have the objective to encourage highly compensated employees to remain within a company or organization instead of moving from company to company. Golden handcuffs come in different forms, such as employee stock options or restricted stock, which endow only when the employee has been with the company or organization for a certain number of years, and contractual agreements, consisting of bonuses or other forms of benefits which must be repaid to the company if the employee leaves before the date agreed on. Golden handcuffs are frequently used for jobs that require rare and specialized skills or in a "tight labor market", where jobs are more common than workers. In any case, although they are very expensive, they are usually less expensive than the cost to replace a particular employee. Golden handcuffs often receive scrutiny from shareholders and directors.

Phantom stock is a contractual agreement between a corporation and recipients of phantom shares that bestow upon the grantee the right to a cash payment at a designated time or in association with a designated event in the future, which payment is to be in an amount tied to the market value of an equivalent number of shares of the corporation's stock. Thus, the amount of the payout will increase as the stock price rises, and decrease if the stock falls, but without the recipient (grantee) actually receiving any stock. Like other forms of stock-based compensation plans, phantom stock broadly serves to align the interests of recipients and shareholders, incentivize contribution to share value, and encourage the retention or continued participation of contributors. Recipients (grantees) are typically employees, but may also be directors, third-party vendors, or others. Business owners may offer phantom stocks as a way to reward and retain employees, however employees can only own phantom stock during the duration of their employment with the company.

In the United States, the question whether any compensation plan is qualified or non-qualified is primarily a question of taxation under the Internal Revenue Code (IRC). Any business prefers to deduct its expenses from its income, which will reduce the income subject to taxation. Expenses which are deductible ("qualified") have satisfied tests required by the IRC. Expenses which do not satisfy those tests ("non-qualified") are not deductible; even though the business has incurred the expense, the amount of that expenditure remains as part of taxable income. In most situations, any business will attempt to satisfy the requirements so that its expenditures are deductible business expenses.

<span class="mw-page-title-main">Defined benefit pension plan</span> Type of pension plan

Defined benefit (DB) pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum, or combination thereof on retirement that depends on an employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provide defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.

Section 79 of the U.S. Internal Revenue Code sets out the U.S. Federal income tax law concerning term life insurance plans provided by employers. Tax benefits are available for both employers and participating employees, under certain conditions.

In the United States, an employer matching program is an employer's potential payment to their 401(k) plan that depends on participating employees' contribution to the plan.

A Solo 401(k) (also known as a Self Employed 401(k) or Individual 401(k)) is a 401(k) qualified retirement plan for Americans that was designed specifically for employers with no full-time employees other than the business owner(s) and their spouse(s). The general 401(k) plan gives employees an incentive to save for retirement by allowing them to designate funds as 401(k) funds and thus not have to pay taxes on them until the employee reaches retirement age. In this plan, both the employee and his/her employer may make contributions to the plan. The Solo 401(k) is unique because it only covers the business owner(s) and their spouse(s), thus, not subjecting the 401(k) plan to the complex ERISA (Employee Retirement Income Security Act of 1974) rules, which sets minimum standards for employer pension plans with non-owner employees. Self-employed workers who qualify for the Solo 401(k) can receive the same tax benefits as in a general 401(k) plan, but without the employer being subject to the complexities of ERISA.

References

  1. ↑ As of 2010, 129,237,000 workers out of 138,918,000, Only 9,681,000 being self employed. Employed Civilians Weekly Hours US Bureau of Labor Statistics
  2. 1 2 3 4 Employee Benefits and Compensation (Employee Pay)
  3. ↑ "Assessor Series FAQ #34. ERI". Archived from the original on 2016-03-04. Retrieved 2012-08-11.
  4. ↑ A Look at CEO Pay Archived 2012-06-25 at the Wayback Machine by Kevin F. Hallock, Linda Barrington
  5. ↑ May 2011 National Occupational Employment and Wage Estimates United States. bls.gov
  6. ↑ May 2011 National Occupational Employment and Wage Estimates, United States -- Management Occupations. bls.gov
  7. ↑ May 2011 State Occupational Employment and Wage Estimates by state. bls.gov
  8. ↑ May 2011 Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates bls.gov
  9. ↑ Median weekly earnings of full-time wage and salary workers by detailed occupation and sex
  10. ↑ "Wage and Hour Division (WHD)". United States Department of Labor.
  11. ↑ Section 13(a)(1) of the FLSA
  12. ↑ http://www.dol.gov/whd/regs/compliance/fairpay/main.htm Archived 2012-05-26 at the Wayback Machine DOL's FairPay Overtime Initiative
  13. ↑ "see Employee Stock Option FAQ's". Archived from the original on 2012-05-10. Retrieved 2012-06-03.
  14. ↑ "Stock Options, Restricted Stock, Phantom Stock, Stock Appreciation Rights (SARs), and Employee Stock Purchase Plans (ESPPs)". Archived from the original on 2011-12-30. Retrieved 2012-06-30.
  15. ↑ Restricted Stock FAQ Frequently Asked Questions [ permanent dead link ] by F. John Reh, About.com Guide
  16. ↑ Bebchuk and Fried, Pay Without Performance (2004), p.171
  17. ↑ Ins And Outs Of Restricted Stock By Eric L. Reiner| Financial Advisor Magazine| April 2006
  18. ↑ "With Options Tainted, Companies Award Restricted Stock", By Joann S. Lublin. Wall Street Journal 03 March 2003: p.B1
  19. ↑ Stock Options, Restricted Stock, Phantom Stock, Stock Appreciation Rights (SARs), and Employee Stock Purchase Plans (ESPPs) nceo.org
  20. 1 2 Phantom Stock and Stock Appreciation Rights (SARs)
  21. ↑ Abenity: What Is An Employee Discount Program?
  22. ↑ Section 119(a)
  23. 1 2 3 EMPLOYEE BENEFITS IN THE UNITED STATES –MARCH 2011
  24. ↑ "Topic No. 424 401(k) Plans | Internal Revenue Service".
  25. 1 2 3 401(k)’s: What You Need to Know. By Tara Siegel Bernard| nytimes.com| 16 December 2008
  26. ↑ Frequently Asked Questions: Sec. 409A and Deferred Compensation
  27. 1 2 3 4 IRS Limits for Deferred Compensation
  28. ↑ Ford J. (1995). State-Mandated Employee Benefits: Conflict with Federal Law? Archived 2011-06-04 at the Wayback Machine . Monthly Labor Review.
  29. ↑ U.S. DOL. Health Plans & Benefits Employee Retirement Income Security Act — ERISA.
  30. 1 2 Non Qualified Deferred Compensation Archived 2012-05-24 at the Wayback Machine
  31. ↑ "Analyzing Restrictive Covenants". Mark P. Carey P.C. 2016-12-31. Retrieved 2017-01-01.
  32. ↑ Pay Without Performance - the Unfulfilled Promise of Executive Compensation by Lucian Bebchuk and Jesse Fried, Harvard University Press 2004 (p.102)
  33. ↑ The complete guide to executive compensation By Bruce R. Ellig, p. 354
  34. ↑ Executive Compensation: The Professional's Guide to Current Issues & Practices By Michael L. Davis, Edge, Jerry T., p.86
  35. ↑ Glynn, Timothy P.; Arnow-Richman, Rachel S.; Sullivan, Charles A. (2019). Employment Law: Private Ordering and Its Limitations. Wolters Kluwer Law & Business. ISBN   9781543801064 – via Google Books.
  36. ↑ Annual Institute on Employment Law. Vol. 2. Practising Law Institute. 2004 – via Google Books.
  37. ↑ New York Jurisprudence 2d. Vol. 52. West Group. 2009 – via Google Books.
  38. ↑ Labor Cases. Vol. 158. Commerce Clearing House. 2009 – via Google Books.
  39. ↑ Ellie Kaufman (May 19, 2018). "Met Opera sues former conductor for $5.8 million over sexual misconduct allegations". CNN.
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