Got a raise? That’s too bad. Sometimes it’s true what they say: more money, more problems. Before you kick off a weeklong party celebrating your new extravagant salary, you might want to come back down to earth first.
On one hand, consider yourself lucky to even get a pay raise, as you’re definitely in the minority. Almost half of employees feel they are underpaid, and salary budget increases are expected to rise by just 3% in 2017. On the other hand, your new salary might have just opened a can of worms you never considered. Read on for the top ways a larger paycheck could change your life for the worse.
1. More money, less security
Perhaps the most unfortunate downside to a pay raise is the way it can influence job security. When it comes time to trim the fat, companies look to the payroll to cut back on expenses. And that large salary you’re enjoying? It’s under the microscope faster than those making less. Those who cost companies the most are sometimes the first to go when budget cuts are in order.
Those with significant pay bumps have greater reason to worry. Often, a company can rid itself of a $100,000 employee for two younger employees eager to learn. And with so many people worried about age discrimination in the workforce, recipients of a pay raise — both young and old — will need to constantly prove their worth to remain on the payroll.
2. More money, more jealousy
A significant pay increase warrants a bit of celebration. The responsible adult in you says you should allocate a larger chunk of money into various savings account each month. But the living, breathing human hears faint whispers of fancy dinners and a kitchen remodel. No matter what you do with the pay increase, people will notice. Expect a bit of side eye with the usual “wow, sounds like business is booming” and “must be nice” comments from those envious of your new salary.
If a new corner office accompanies that big raise, you can expect some jealousy from your co-workers, as well — especially if they were vying for the same raise. Office politics are a lot like high school, and your good fortune is often cause for jealousy among others. That’s why many experts suggest keeping your salary details a secret.
3. More money, more responsibility
The time you took to present your case to the board likely included numbers, facts, and figures detailing your value to the company. Perhaps you contributed to the marketing rollout in addition to your normal duties as an IT developer. That extra effort surely warrants a raise. But now your increased salary demands efforts above and beyond the standard duties to justify such payment.
You might find the $5,000 pay raise now accompanies a 50-hour work week consistently, meaning your compensation for the new responsibilities doesn’t necessarily add up in an hour-by-hour breakdown. If you’re in the market for a bump in pay, make sure the new expectations match your new compensation.
4. More money, more taxes
The more money you earn, the more taxes you pay. And we can say with upmost certainty that there’s nothing more frustrating than realizing just how much of your paycheck is forked over to the powers that be every year. Getting a raise doesn’t mean you’ll take home less money overall, but it could bump you into a higher tax bracket. Luckily, only a portion of your salary would be taxed at the higher rate depending on how much more you earn.
Don’t worry, it’s not all that bad. It simply means you should consider all possible loopholes when establishing your new budget.
5. More money, fewer benefits
Another unfortunate downside to getting a pay raise is the potentially harmful effect it can have on certain benefits applicable to you. Earning more money could disqualify you for some things, such as affordable housing, education credits, or child tax credits that are decreased with each higher income level. Even Roth IRAs are subject to income limits and could affect your ability to save for retirement. It’s entirely possible that a significant pay raise could void programs you rely on, so it would be wise to double check eligibility before accepting any salary increases.
6. More money, more creep
You’ve spend years living well within your means, so it’s only natural when a pay raise evokes a bit of lifestyle creep. But increasing your discretionary spending based on your new income is quite dangerous. Those new cars and bigger houses have the tendency of snowballing into larger debt. This is OK if your inflated salary remains, but what happens if it suddenly disappears? Unexpected layoffs, family emergencies, or company restructuring can derail the gravy train you’re so used to riding.
7. More money, more leverage
We hate to say it, but sometimes the cat-and-mouse game employers play with job worth and salaries are a deceitful way of maintaining leverage. Companies are well aware that countless Americans are one paycheck away from living on the streets, which means they can offer a lower salary than you’re worth, knowing you’ll likely accept it. Then, in a few years’ time, they’ll appease you with a welcomed $2,000 raise, ultimately boosting them to sainthood in your mind’s eye. But now you feel obligated to work harder than ever before, thanks to the overwhelming guilt you feel for squeezing more money from your boss.
This is what’s known as leverage. Employers have leverage over you in the form of noncompete clauses and a tough job market. Money is power, and offering you that raise could just be their way of exercising control over your career decisions.
But it’s not just pay increases that could do more harm than good. A hefty bonus check might be cause for alarm, as well. Here’s why.
8. The downsides of bonuses are just as bad
Maybe all this talk about the negative effects of getting a pay raise is irrelevant, as many employers are doing away with them entirely. Data show pay increases do little to encourage loyalty or boost employee performance, and bonus incentives are much more effective for influencing behavior.
There’s hardly a worker who’d turn down extra cash, but some suggest bonuses are potentially just as bad as pay raises. First, companies often structure invariable pay to be able to accommodate bonus incentives in the first place. Offering employees a $2,500 raise merely tricks them to believe they got something extra, when in reality the funds were always available from the start.
What’s more is that bonuses can impact pensions, retirements, and other accounts. Time notes “Certain benefits calculations are based on your salary, so even if you’re getting the money in the form of a bonus, it’s not counting towards these important ancillary calculations. And if you lose that job, your unemployment benefits are calculated based on — you guessed it — your salary.” Even mortgages and other financing are determined by a hard salary, not bonuses.
Follow Lauren on Twitter @la_hamer.
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