7 financial terms to consider before signing a contract when you start a new job


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Know how and when the company hands out bonuses.

There's nothing like the feelings of relief and accomplishment that come with a job offer.

But there's still business to take care of before you celebrate: reviewing and signing the contract. Your offer package is likely filled with legalese, but don't make that an excuse to skim through it.

"Ultimately we need to view employment agreements as the glue that holds the relationship between the employer and the employee together," Mark Hamrick, senior economic analyst at Bankrate.com, told Business Insider.

"How you define that glue is based on the needs and desires of both parties," he said. "It's generally the case, unless the employee has a great deal of bargaining power, that the employer holds a greater weight in determining what those terms are." Most importantly, the contract should establish what your employer expects of you and vice versa.


Below, Hamrick lays out the seven most important financial terms to review before signing any job contract:

1. Base pay

When you receive an offer letter from a company, annual salary, or base pay, is likely at the front of your mind. And rightly so - you need to know how much you're being paid for your time and work. If the base pay number on the contract doesn't match the number you discussed in your interview with the company, say something now.

By signing a contract, you're agreeing to the salary stated - at least until you get a promotion or a raise - so don't expect to sign it and then negotiate that number on your first day in the office.

2. Incentive pay

Depending on the position, you may be offered compensation beyond your base salary in the form of bonuses or commission. This type of incentive pay differs across employers, so you'll want to ensure your contract specifies whether a bonus is guaranteed or discretionary (meaning at-will of the employer).

Plus, is your bonus a fixed amount or based on performance? If it's performance-based, who's judging your performance? "This might include some goals that could be in part, if not entirely, aspirational ... 'How high of a bar are we setting for this person to hit?'" said Hamrick.


Also, what's the pay-out schedule - is it quarterly, bi-annually, or once-a-year holiday bonus? The contract should answer all of these questions clearly.

3. Vacation and leave

"Many people are highly interested in terms of their leave - that could include what we would broadly define as vacation days, personal days, sick time, maternity/paternity leave, caring for a sick relative, or bereavement leave," said Hamrick. A contract should say how many sick, vacation, and otherwise non-work days you have in a calendar year. It should also specify how many, if any, are paid.

4. Insurance

If your job contract is coming from a company with 50 or more full-time employees, you should be offered health insurance.

"We don't necessarily think about having insurance because we're not betting that something bad is happening to us, but it's good to have if something does," Hamrick said. "There are a variety of insurances that an employer either provides or subsidizes: health insurance, dental, vision, life, disability insurance and whether they pertain to family members."

You don't have to use the health insurance offered by your employer - like if you're under 26 and still on your parents' plan, for instance - but if you plan to, read the terms carefully and know what you're getting. Make sure you understand how much you'll pay for your portion of the monthly premiums as well.


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If your company offers tuition reimbursement, it'll be in the contract.

5. 401(k) matching

"[T]he most common variety of retirement compensation is the 401(k) and match - to the degree that an employer is essentially either providing some retirement pay or incentivizing the employee to contribute to that [fund]," Hamrick said.

There are a variety of 401(k) matching formulas employers use - whether they contribute a percentage of your total compensation or dollar amounts up to a certain limit - and the details of your company's plan should be clearly stated in the contract.

6. Stock options

Many new or young companies offer stock options to their employees, which is an opportunity to make money if the company does well. If you plan to take advantage of the company's stock options, pay attention to the vesting schedule, exercise price, and exercise time - this is what determines how much money you could potentially earn and under what time frame.

"For many people, it's the financial icing on the cake," Hamrick said. "[But] this is an area where people need to be very cautious." If the company is lucrative, your stock options could have incredible value. Conversely, according to Hamrick, the company could do poorly, in which case you should "gauge the risk" and ask yourself, "is my compensation still adequate" without stock options?


7. Education benefits

More than 60% of employers offer tuition assistance in the form of compensation or reimbursement, and many are seeing less turnover and more satisfied employees as a result. If your employer offers this benefit, it should be outlined in the contract.

Your employer may also be part of the growing number of companies helping employees with student loan repayment. It's an especially attractive benefit to millennials, said Hamrick. Make sure your contract states the maximum annual and lifetime contributions the company will make to your debt, as well as the tax implications.