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Opt for a raise over a work bonus when offered

Opt for Pay raise or Bonus?

In recent years, American workers have been experiencing favorable conditions in the labor market. Wages, especially for lower-income earners, have been on the rise, outpacing inflation. Companies are engaged in fierce competition to attract and retain talent. To achieve this, many employers have turned to bonuses as a means of incentivizing employees, whether for joining the company, staying on board, celebrating holidays, or achieving specific business milestones. However, it’s crucial to recognize that a bonus is a one-time windfall that doesn’t bring lasting changes to compensation and can be revoked as easily as it’s granted.

Bonuses may be taxed more

Receiving a bonus instead of a pay raise can be disappointing, feeling like a missed opportunity. Bonuses can also be subject to higher taxation than regular wages, although there are ways to mitigate this, potentially leading to a refund. For instance, Jenny Petty, a teacher in Arkansas, expressed frustration when her state legislature provided a $5,000 bonus in 2022 instead of a salary increase. She pointed out that salary raises offer several advantages, including lower taxation and greater financial stability. Fortunately, the state later decided to increase teachers’ minimum salaries and provide raises, resulting in a substantial long-term boost for Petty.

Pay raises benefit more

Pay raises, in contrast to bonuses, have a significant and enduring impact. They influence various aspects of compensation, such as Social Security contributions and retirement benefits, by increasing a worker’s overall income. Moreover, a salary increase can empower employees to negotiate higher wages in future job opportunities, as many employers inquire about current pay levels during recruitment processes.

Bonuses may not be as effective

While bonuses may seem enticing, they often fall short of providing the financial security and stability that raises offer. A one-time bonus, whether for signing on or achieving specific targets, doesn’t guarantee job security or ongoing financial improvement. In contrast, merit-based pay raises provide a sense of permanence and can help employees understand how they can advance within an organization’s pay structure. They also contribute to pay transparency.

Bonuses are not what they appear to be

From a corporate perspective, bonuses aren’t always the panacea they appear to be. A signing bonus, for instance, may not foster employee retention, as individuals may accept the bonus and leave shortly thereafter. Bonuses, being short-term incentives, lack the stability and long-term commitment associated with permanent raises. Employers may miss out on valuable employees who seek a steady income due to personal financial constraints or risk aversion.

Right time to negotiate

Currently, the labor market in the United States is robust, with historically low unemployment rates. While signs of cooling may be emerging, the market remains favorable for workers. This unique moment presents an opportunity for employees to negotiate for better compensation packages. However, it’s essential to recognize that this favorable labor market may not last indefinitely. Workers should consider negotiating for higher base pay rather than relying on bonuses, even if signing bonuses are offered. A higher base wage provides greater financial security and long-term benefits. Employers may view signing bonuses as a tool to attract talent to the labor market, but workers can often achieve better outcomes by focusing on securing a higher base wage.

While not all negotiations may result in immediate success, this is a prime time for workers to advocate for higher wages, given that low-wage workers have seen their incomes rise more rapidly than high-wage earners. Organizing unions can also be an effective means of continually pursuing higher wages. Ultimately, seizing this opportunity to secure better compensation is crucial, as labor market conditions may change in the future.

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