There are many factors that go into negotiating compensation during the interview process. Yes, salary is the most common but other factors may include stock options, annual and long-term incentives, insurance, retirement, severance, flexible work schedules (the top priority of many millennials today), technology and vehicle provisions, and vacation allowance. The one thing we most often leave out when determining our compensation requirements is the cost of the commute. The distance, traffic, and length of commute can drastically impact your total compensation and happiness in the position. Take this recent client example:
An IT professional is considering a career change from a nonprofit organization to a Fortune 500 corporation. While her salary will increase from $75,000 to $100,000, her current commute will increase by 80 miles and 90 minutes round trip daily. Her insurance benefits will improve but her vacation and retirement benefits remain similar to her current position. So how much will the commute cost her annually? Let’s do the math.
The current mileage rate from the United States Federal Government is $0.58/mile, so we use this number to factor in the expenses associated with the additional distance to her new employer. This rate is designed to compensate for vehicle depreciation and fuel expenses. Based on the age and type of car she drives, her expense may vary but this gives us a consistent starting point.
$0.58 x 80 miles = $46.40/day x 5 days/week = $232/week x 50 weeks/year = $11,600 in vehicle ware and tare annually.
In this scenario, based on the mileage rate alone, the IT professional is still receiving a $13,400 raise. Sounds great, right? But what about the time her new commute will consume from her personal life? Let’s do the math.
Remember that personal time is more valuable than the salaried time so we double her current hourly rate. Based on her current salary of $75,000 her hourly rate is $36.06 while at work, making her personal time worth $72.12.
$72.12 x 1.5 hours = $108.18/day x 5 days/week = $540.90/week x 50 weeks/year = $27,045 in personal time annually.
When we add the cost of her personal time to the cost of vehicle depreciation and fuel, we realize that the total cost of the job change is $38,645. Based on the proposed salary increase of $25,000, the increased commute to her new job will cost her $13,645 in time and vehicle expenses.
Should she accept the new offer? That depends. Additional factors beyond the compensation package must be considered when making a job change. These include her current level of happiness in her role, the culture of both her current and potential employer, the opportunity for advancement, professional development opportunities, and even industry recognition. There are certainly ways to mitigate commute costs also. If relocating closer to the new employer is an option, this will cut down on the costs (be sure to budget $10,000 for the relocation of a family of four). Ridesharing services or alternate forms of transportation may also help lower costs but can also increase the total time she spends commuting. While the cost of the commute is not the only factor in determining the cost of a new job, it is certainly one to add to the equation.
For assistance negotiating with your future employer, schedule a time to learn how we can help.