Money Management Part I - Understand Employment and Income Benefits

Good financial management is how to make the best use of your limited income, so that you can meet your current necessary needs as well as how to implement strategies to achieve your short and long-term goals.

I. Direct compensation

Direct compensation is the money that you earn or money that the company pay directly to you without going through any third party.

1) Salaries and wages

These are the most common types of direct compensation

a) It is governed by provincial or State employment standards/legislation.
b) It is a collective agreement between union and employer , or by an individual contract between employer and employee.

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2) Commission agreements

a) Unlike salaries and wages, a commission does not establish a legal employer-employee relationship.
b) Any independent contractor may receive a commission as long as he or she provide actual work for an employer.

3) Tips, gratuities, and bonuses

These also a direct compensation and must be reported as income.

II. Indirect compensation

It is the money that you have been contributed when you are at work and will pay back to you later on as benefits

1) Government pension plan

a) Contributions are directly related to your level of income
b) Contributions are mandatory and are deducted from your earnings by your employer
c) You receive a tax credit of 25% of the premiums you pay
d) Self-employed persons must pay both contributions.

2. Government Unemployment plan

a) Contributions are mandatory, and are directly deducted from your pay check.
b) Your employer's contributions are not considered as a taxable benefit to you.
c) You receive a tax credit of about 25% of the premiums you pay annually.
d) Self-employed persons do not contribute to unemployment insurance and cannot collect benefits.
e) You will receive the benefits if your are unemployed according to law of federal unemployment.

3. Registered pension plans

a) The employee's contributions are deducted by payroll.
b) The employer's contributions into the employee's plan are taxable.
c) The employee can claim both her/his own and the employer's contributions as a tax deduction on his/her personal tax return - up to the person's annual contribution limit .

4. Group life and disability insurance plans

a) These plans provide for some replacement of your earnings, in the event that you become disabled or your beneficiary in case of death.
b) If the premium was paid out of pre-tax income , then the proceeds are taxable.
c) If the premium was paid out of after-tax income, the proceeds are not taxable.

5. Profit-sharing and stock options

a) This form of incentive program are considered taxable income.
b) In case employees are allowed to purchase shares below market value as a benefit of the plan, the difference between the purchase price and fair market value (FMV) is considered a taxable benefit.

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