Salary Negotiations for the Employee

So your employer has made its annual salary offer, and it does not quite meet your expectations.  Not to worry you may have some wiggle room to negotiate. Additional salary may not be an option, but non-taxable benefits could be. Non-taxable benefits can have similar effects to a salary increase and may even be advantageous. 

Here’s an example: Let’s say you earn $75,000 annually and have marginal tax rate of approximately 33 per cent.  If your employer were to pay you an additional $1 of salary, your net take-home pay after taxes would be $0.67.  At $75,000 (assuming basic credits only), your after-tax income would be approximately $57,300. 

Now let’s assume, this year, your employer offered you a raise of $3,000. This would give you a gross income of $78,000. Assuming just basic credits, your after-tax income would be approximately $59,200. However, what you were really hoping for was a $5,000 raise, which would bump you up to $80,000 before taxes.  At this gross salary, your approximate take-home pay would be $60,600.

Here comes the negotiation aspect: We've already determined that your employer is willing to give you an additional $3,000 in deductible costs. Instead of this $3,000 coming as additional salary, why not request that your raise be given as a non-taxable benefit (available options to follow). 

Under this method, you will pay equivalent tax as last year on your $75,000 salary. This will result in after- tax income of $57,300 plus the benefit of an additional $3,000 tax free, giving you an after-tax income of $60,300. Your take-home pay is now $1,100 more than if you had received an additional $3,000 in salary and only $300 worse than if you had received the $5,000 raise you were originally hoping for.

Initial Salary	Raise: Salary	Non-taxable benefits	Consideration Received	After-Tax Income
$75,000	$3,000	$0	$78,000	$59,200
$75,000	$0	$3,000	$78,000	$60,300
$75,000	$5,000	$0	$80,000	$60,600

Here are some of the most popular non-taxable benefits you can negotiate, if they meet the requirements mentioned below:

1.   Discounts on in-store merchandise:

These discounts must be available to all employees, and the goods must not be sold to staff below cost (unless the goods are used/refurbished or damaged).   

2.   Education costs:

      

      The education or training must be primarily for your employer’s benefit (i.e., must relate to your current position of employment).

      3.   Membership fees:

Membership fees must be related to social and athletic clubs where membership is principally deemed to be for the benefit of the employer (i.e., must relate to your current position of employment).

      4.   Employer-provided daycare:

The daycare must be in-house provided daycare by the employer.

      5.   Interest subsidies on mortgage or other financing:

The mortgage or other financing arrangement must be arranged by your employer, and the employer must make the payments directly to the financial institution for the portion of your interest costs.  The employee’s share of the interest costs must remain at or above CRA’s quarterly prescribed rate (presently, one per cent).