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Week 11 : Managing Offer Letters
Understanding Offer Letters
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Offer letters can seem long, and you want to avoid misunderstandings, otherwise, later, you will be sorry. By breaking it down, you can navigate through all the confusion. As always, consult your attorney to make sure you are covered and understand your offer letter. They can be daunting and unforgiving if you agree to something you don’t fully understand.
Key Terms
1. Annualized Salary Rate – The total amount of money you gain in a year when your employer pays you for your work.
2. At-will – Describes a working environment in which employers are free to terminate employees at any time, without cause, explanation, or prior warning, provided it does not violate state and federal anti discrimination laws. The same holds true for the employee who can leave at will, at any time. Usually, both employers and employees favor an at will employment relationship over job security.
3. Commission Plan – A plan to pay an employee an additional percentage of sales. For example, car sales associates are paid a base rate plus a commission based on a percentage of their sales. This system of commission rewards and incentivizes successful salespeople.
4. Equity – The degree to which an employee owns a part of the company, in stocks or ownership, etc.
5. Exempt – Employees who are exempt from the Fair Íabor Standards Act (FÍSA) overtime regulations and, therefore, not entitled to overtime pay. These are usually administrative, professional, or executive positions. Each state has different exemption requirements, so make sure to check with them.
6. FLSA – the Fair Íabor Standards Act, which regulates business practices such as minimum wage and overtime pay.
7. Non exempt – Employees who are entitled to overtime pay for any hours worked beyond 40 in a work week (seven consecutive 24-hour periods). They are typically paid hourly and perform more manual or technical duties. Each state has different exemption requirements, so make sure to check with them.
8. Overtime – Work done by hourly employees beyond the regular work hours per week.
9. Per Diem – By the day; per day. A daily payment intended to cover expenses like hotels, transportation, or meal costs when traveling for work.
10. Performance-based Vesting – Regards a time bound stock ownership plan that allows employees, directors, owners, and entrepreneurs to acquire equity in the firm they’re working for.
11. Vesting Schedule – refers to the amount of time you’ll need to be employed at an organization before you have 100% ownership of your shares, 401 (k) employer matches, or profit sharing contributions. It’s basically a waiting period.
Super Steps – How to Understand Your Offer Letter
1
Make sure the offer letter clearly states your position or title.
1
Make sure the offer letter clearly states your position or title.
As you’re negotiating, pay attention to how the position is listed for a general understanding of what the job will be like. The position title on the offer letter is the first indicator of the expectations of your job.
2
The offer letter should have your Supervisor’s name and position.
2
The offer letter should have your Supervisor’s name and position.
This verifies who you will be reporting to and they should be the same person who interviewed you.
3
The offer letter should have your work schedule.
3
The offer letter should have your work schedule.
Your schedule is another vital aspect in an offer letter. If there is no schedule, you won’t know when to start working, or when regular meetings are held. Not all traditional work schedules include an 9-5. For example, if you agree to working nights without realizing it, you could end up missing your weekly Dungeons & Dragons larping event!
4
Make sure you have the proper Exempt or Nonexempt classification.
4
Make sure you have the proper Exempt or Nonexempt classification.
There’s a significant difference between exempt and nonexempt employees. Again, each state has their own requirement for exemption. You can check out your state’s labor laws here, but it is always good to meet with an attorney.
5
The offer letter should outline your work responsibilities.
5
The offer letter should outline your work responsibilities.
A list of responsibilities should also be included in your offer letter. Even if they are not itemized in a list form, a fully fleshed out job description is also suitable. The more specific the job description, the better both you and your employer will understand your position. With this, you can deliver the results that you committed to. Knowing all your responsibilities can help you obtain raises, bonuses, and promotions. Additionally, it will highlight any red flags or glossed over points of your position, if there are any.
6
If you were offered Equity and/or Vesting, make sure your letter covers those details.
6
If you were offered Equity and/or Vesting, make sure your letter covers those details.
Make sure to get your vesting schedule. This will detail which stock benefits you are entitled to, and how long it takes to be fully 100% vested in the company. This means that you will completely own all of your retirement funds. This is also where you would see a 401(k) statement if you negotiated for that. Companies use a vesting schedule to reward employees for staying with them. Knowing the vesting schedule allows you to calculate how much additional money you’ll make after you are 100% vested, and clarify how much room you have for growth.
7
The offer letter should outline your work responsibilities.
7
The offer letter should outline your work responsibilities.
Any bonus must be clearly detailed within the letter. If there aren’t any listed, then the company won’t be obligated to pay them. If they have them, the letter typically includes target amounts, criteria, payment terms, and commissions. You can refer to this part of the letter when you’re negotiating a formal bonus or commission plan. Any future compensation you get, outside of your regular salary, will need to be listed in the letter for you to receive it.
8
Offer letters must cover your salary details.
8
Offer letters must cover your salary details.
This section lays out your base salary and all of its deductions and with holdings. If you’re exempt, or a non exempt employee, then the letter should list both the salary per year and per pay period. It should also specify the pay period itself. Otherwise, if you’re non exempt, it should list the pay per hour. There is a lot of math involved here, so check to make sure all your calculations are sound before you agree!
Do's And Don'ts
Do:
Hire your attorney to make sure everything you negotiated is in your offer letter and you are in full awareness of what you are signing up for.
Don’t:
Don’t disregard any detail of your work assignment, pay, benefits, or duties. Every little detail matters! Even though it might be tedious and brain melting to read all that professional legalese, you will be thankful later.
