Cost_benefit - Cost/benefit analysis of various forms of...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Cost/benefit analysis of various forms of employee compensation and fringe benefits Alternative forms of compensation often can be compared by looking at the ratio of the employer's after-tax cost to the employee's after-tax benefit. A corporation’s views a lower ratio as more desirable form of compensation. In general, employers should not utilize forms of compensation that have a higher ratio than cash compensation as cash compensation is more efficient. A major limitation of such computations is that the computations often produce very different results for different employee groups meaning that a form of compensation that is perceived as very beneficial by one employee group is perceived as being much less beneficial by another employee group. In addition, for some fringe benefits it is often difficult to value both the cost of the benefit and the “perceived” benefit (which may become an issue for companies that have to include an amount in an employee’s gross income). 1. Cash bonus – A corporation in the 35% tax bracket pays a bonus of $10,000 to a high-income employee in the 33% tax bracket. Medicare taxes (1.45%), but not Social Security taxes, are applicable. Company's cost Bonus $10,00.00 Plus: FICA tax ($10,000 x 1.45%) 145.00 Less: Income tax savings ($10,145 x 35%) (3,550.75) Net cost $6,594.25 Employee’s benefit
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Cost_benefit - Cost/benefit analysis of various forms of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online