Can you cite this figure? I'd like to know where the additional funds go for an average employee. Is this including things such as material expenses (photocopy paper, utility bills, etcetera)? Because that's the only way I could imagine the 2x happening. And this will have huge variation depending on the type of job.
Imagine that I'm an employer and I am hiring for a position that I think could generate $1.5M/yr in value for the company. I'm probably willing to pay the perfect person $1M/yr for that (plus 20-25% in fringe expenses).
Some people might want all cash; others might want mostly RSUs. I'd want to pay the first person $900K in cash and $100K in shares. I'd want to pay the second person $100K in cash and $900K in shares.
The law requires me to post only the cash portion of their compensation; from the above facts, my range is quite genuinely $100K to $900K.
It's a dollar for dollar match on up to 7% of pay. Let's say she makes $100. She puts in $7 and her employer also puts in $7. That's $14, and upon early withdraw she would pay $1.40 (penalty) + income tax (likely $0). She would come out with an additional $5.60.
I think that 5-10x is rare, but 2-3x is common. The reasoning is that the actual cost of an employee is 3-5x their actual pay. There is insurance, taxes, more insurance, benefits, workspace (which some contractors will need as well), office supplies, computer, etc. All that adds up.
I should point out that I'm considering the 2X to be the total operational costs to the employer for having an employee. In other words, if I am billing a client $X per hour then my expectation is that my salary will never be more than $X/2 per hour.
As kasey_junk points out, an employee will have federal income tax, social security and medicare payments as well as health insurance premiums removed from their paychecks. Some employers also offer additional insurance policies such as short term disability, long term disability, and life insurance. Those are optional and would be additional deductions from the employee's paycheck.
Path dependence and all that, so I'm sure this is how things worked out for you.
People should be aware though, your example isn't even close to usual.
Work the numbers for a simple case - for round numbers take 100k/yr and 1000/month disposable. To do 8x that you are adding basically another 100k, post tax - so add another 35 k.
Do at this rate you have a salary multiple of 2.35. This just doesn't happen in general, for the same job. You may have an opportunity for a different job at 2.5 timed salary, but mostly people don't
Much more realistic is a 30% bump, which is still on the high end giving you a disposable income multiple of 2.5, which isn't bad.
Anyway, the numbers vary a bit with higher salary and rates, but mostly people won't see anywhere near 3x, let alone 8x - unless they are comparing very different jobs.
You could run another thought experiment. $50M exit, 20% goes to employees (because 5% is just the minimum). Suppose 10 employees, 5 are maxed out, the other 5 have 4,3,2,1,0 units respectively. 20% of $50M is $10M. The payout range then is $286K to $1.4M (before taxes).
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