On a serious note: why is it the norm in the US to state your annual gross salary? For context: I’m in the EU and to me it makes a lot more sense to deal with a monthly, take home (i.e. after taxes) sum. Moreover most people here don’t even have access to the non-taxed amount - they receive the net amount directly.
Because so much depends on the income tax based on the tax year. We calculate our taxes based on our annual income. Our qualifications for government benefits (subsidized housing, food, healthcare, financial aid for universities) are keyed to our annual income, as reported on our taxes. Many programs, even for richer people, also look to income: tax credits for electric cars, specialized retirement accounts, etc.
And because lying on your taxes is a serious crime, many private banks and landlords use those annual figures as proof of income for loans, credit cards, long term leases, etc.
It just pervades how we think of money, on an annual basis.
In Europe people use annual gross salary when they earn enough too.
Monthly after-tax is usually used by lower income people, where low short-term numbers really matter (“Can I make my rent this month?”, “Can I afford to buy/do this small thing this month?”), while annual gross salary is used by people who make a lot of money, where the day-to-day financials don’t matter, but long-term stuff does, and where you also generally have much higher tax pay backs.
I used per-hour salary when I was in university and only worked a few hours per week. I switched to monthly after-tax when I got into an entry-level job that paid quite little, and when I got to higher-paying senior/expert level jobs, I started using yearly figures.
Maybe it differs from country to country then - not necessarily representative for the whole EU. The only time I’ve heard yearly figures is when talking to colleagues from abroad. I’m making above average, and even from folks making 2-3 times more I’ve only heard monthly.
Edit: all job offers (at least those that state a range or a number) are monthly net too.
I had the same thing when negotiating for salaries too, so it wasn’t just when talking to people, but it was in a more official way as well, and I even got it in my contract like that.
When I was working as a tutor, my contract listed my pay in hourly pay, because I worked varying hours and I was paid by the hour. On my entry-level job my contract was in monthly before-tax pay, but negotiations were with monthly after-tax pay. And my later jobs were all in yearly before-tax pay, which might also have been relevant that way because in some of these jobs I had yearly bonuses and/or part of the payment in stock I got once a year. So with these yearly figures in there, probably it just made sense make everything yearly.
In the US about 5-10% of people are “self-employed” and have access to all their pre-tax income.
Essentially a single employee business, they are required to withhold their own taxes from their earnings, including the employment taxes normally paid by the employer, etc. which is an additional 15.5% on top of the progressive income tax.
Aside from that, in the US there are forms you fill out at the beginning of employment which determine how much is to be withheld. While they can be updated at any time, it’s not always done promptly. Divorce or death of a dependant child could increase how much is withheld.
I have been self employed for almost 20 years. I pay a far higher tax rate than billionaires and I haven’t been able to afford to go to the dentist even once in that time.
Fair point. It didn’t make sense to me because where I am you have mostly no say on the pre-taxed amount.
If you’re employed by a company, it has to pay taxes for you which are mostly going the state health insurance and state retirement funds, up to a particular sum (which is around the average salary for everyone - so if you’re making more than that, you’re not having more put aside towards retirement). A lot of companies offer extra (private) health insurance as a perk, but it’s fully optional. From then on you can save into a private retirement fund, but again fully optional and up to the person.
If you’re (legally) self-employed, you kind of have to do the same thing by yourself, you just have the liberty to decide how much to declare as your salary (people here usually as little as possible so as to pay as little taxes as possible). If you’re in the grey/black market segment and you don’t pay anything, you’d have to 1) pay for the basic state health insurance yourself (otherwise, if something happens, you’re paying way bigger sums out of pocket) and 2) you have to make up for the length of service, otherwise (if you don’t have enough years of work) you can’t retire.
US companies define pay either hourly or annually. In general upper and middle management will make an annual salary and the people actually doing the work will be hourly. So some of the people making annual pay believe it to be very important people know they aren’t an hourly worker.
Thanks for explaining. So it’s kind of a class thing too - I didn’t know that. Still, I’ve heard (read) about a lot of folks in engineering and manufacturing (so not management) talking about their annual numbers.
Don’t forget the contractors, we flooded the market with contractor positions for a few different reasons. Some having to do with firing practices, same with insurance practices.
Then there’s the bids for jobs where contractors can take the job and some of those can be sketchy with subcontractors who may or may not be legally allowed to work or be getting paid rates that are legitimate.
Example: Beagal Cinema’s says they want an overnight cleaning crew that will clean all the theaters/floors/bathrooms and such nightly. Another company tells them they can do it for $500(made up number) a night. Then that contractor hires anyone, say 4 people and they bring their kids. Run through and clean it all up between 3am-9am every morning. Each one of them takes home $100 a day, and the contract-owner keeps $100. Beagal isn’t illegally hiring children in said case, and neither is the contractor, but the kids are having to work many nights a week with their parents to get the job done in time so they can be dropped off for school or maybe do homeschooling. (But those parents often don’t speak English, so I assume they would want their kids to go to a school to learn english at the very least).
Worked at a theater that did that from 2006-2012. So it isn’t a new thing.
…every employer i’ve worked with endeavors to put people doing the actual work on salary as soon as possible, so they can harvest that sweet sweet unpaid overtime for maximum profitability…
You can do quite a bit with your pay “pre tax”. Fund your retirement 401k, fund your healthcare plans HSA/FSA, fund child care dependant plan, vision, dental, life insurance… If I said my income was only what hits my bank account then i would be understating my income by quite a bit.
as an american, i have to assume its because its a bigger number. “graphs go up and right, and bigger numbers are better.” is a motto for a lot of terrible practices here.
one of these that has been bothering me lately is when people state something like “ten times less!”. this statement means nothing to me, but it has a bigger number than a % of total.
The other reason likely has to do with taxes. If I was making 50k a year and filing my taxes as a single earner, I’m going to end up with a different take home vs if I was married filing jointly and my spouse made 300k. Plus all of the other things we can have and adjust as deductibles and pretax things like 401k, 403b, Insurance, HSA, etc.
On a serious note: why is it the norm in the US to state your annual gross salary? For context: I’m in the EU and to me it makes a lot more sense to deal with a monthly, take home (i.e. after taxes) sum. Moreover most people here don’t even have access to the non-taxed amount - they receive the net amount directly.
Because so much depends on the income tax based on the tax year. We calculate our taxes based on our annual income. Our qualifications for government benefits (subsidized housing, food, healthcare, financial aid for universities) are keyed to our annual income, as reported on our taxes. Many programs, even for richer people, also look to income: tax credits for electric cars, specialized retirement accounts, etc.
And because lying on your taxes is a serious crime, many private banks and landlords use those annual figures as proof of income for loans, credit cards, long term leases, etc.
It just pervades how we think of money, on an annual basis.
lying on your taxes is a serious crime if you’re poor
In Europe people use annual gross salary when they earn enough too.
Monthly after-tax is usually used by lower income people, where low short-term numbers really matter (“Can I make my rent this month?”, “Can I afford to buy/do this small thing this month?”), while annual gross salary is used by people who make a lot of money, where the day-to-day financials don’t matter, but long-term stuff does, and where you also generally have much higher tax pay backs.
I used per-hour salary when I was in university and only worked a few hours per week. I switched to monthly after-tax when I got into an entry-level job that paid quite little, and when I got to higher-paying senior/expert level jobs, I started using yearly figures.
Maybe it differs from country to country then - not necessarily representative for the whole EU. The only time I’ve heard yearly figures is when talking to colleagues from abroad. I’m making above average, and even from folks making 2-3 times more I’ve only heard monthly.
Edit: all job offers (at least those that state a range or a number) are monthly net too.
Yeah, could totally be a regional difference.
I had the same thing when negotiating for salaries too, so it wasn’t just when talking to people, but it was in a more official way as well, and I even got it in my contract like that.
When I was working as a tutor, my contract listed my pay in hourly pay, because I worked varying hours and I was paid by the hour. On my entry-level job my contract was in monthly before-tax pay, but negotiations were with monthly after-tax pay. And my later jobs were all in yearly before-tax pay, which might also have been relevant that way because in some of these jobs I had yearly bonuses and/or part of the payment in stock I got once a year. So with these yearly figures in there, probably it just made sense make everything yearly.
In the US about 5-10% of people are “self-employed” and have access to all their pre-tax income.
Essentially a single employee business, they are required to withhold their own taxes from their earnings, including the employment taxes normally paid by the employer, etc. which is an additional 15.5% on top of the progressive income tax.
Aside from that, in the US there are forms you fill out at the beginning of employment which determine how much is to be withheld. While they can be updated at any time, it’s not always done promptly. Divorce or death of a dependant child could increase how much is withheld.
I have been self employed for almost 20 years. I pay a far higher tax rate than billionaires and I haven’t been able to afford to go to the dentist even once in that time.
Fair point. It didn’t make sense to me because where I am you have mostly no say on the pre-taxed amount.
If you’re employed by a company, it has to pay taxes for you which are mostly going the state health insurance and state retirement funds, up to a particular sum (which is around the average salary for everyone - so if you’re making more than that, you’re not having more put aside towards retirement). A lot of companies offer extra (private) health insurance as a perk, but it’s fully optional. From then on you can save into a private retirement fund, but again fully optional and up to the person.
If you’re (legally) self-employed, you kind of have to do the same thing by yourself, you just have the liberty to decide how much to declare as your salary (people here usually as little as possible so as to pay as little taxes as possible). If you’re in the grey/black market segment and you don’t pay anything, you’d have to 1) pay for the basic state health insurance yourself (otherwise, if something happens, you’re paying way bigger sums out of pocket) and 2) you have to make up for the length of service, otherwise (if you don’t have enough years of work) you can’t retire.
Edit: I meant to reply to https://lemm.ee/comment/20945227 , but I guess it applies to your comment as well.
US companies define pay either hourly or annually. In general upper and middle management will make an annual salary and the people actually doing the work will be hourly. So some of the people making annual pay believe it to be very important people know they aren’t an hourly worker.
Thanks for explaining. So it’s kind of a class thing too - I didn’t know that. Still, I’ve heard (read) about a lot of folks in engineering and manufacturing (so not management) talking about their annual numbers.
Right, that’s the third group. People who do higher priced work that upper management doesn’t want to pay overtime for.
Don’t forget the contractors, we flooded the market with contractor positions for a few different reasons. Some having to do with firing practices, same with insurance practices.
Then there’s the bids for jobs where contractors can take the job and some of those can be sketchy with subcontractors who may or may not be legally allowed to work or be getting paid rates that are legitimate.
Example: Beagal Cinema’s says they want an overnight cleaning crew that will clean all the theaters/floors/bathrooms and such nightly. Another company tells them they can do it for $500(made up number) a night. Then that contractor hires anyone, say 4 people and they bring their kids. Run through and clean it all up between 3am-9am every morning. Each one of them takes home $100 a day, and the contract-owner keeps $100. Beagal isn’t illegally hiring children in said case, and neither is the contractor, but the kids are having to work many nights a week with their parents to get the job done in time so they can be dropped off for school or maybe do homeschooling. (But those parents often don’t speak English, so I assume they would want their kids to go to a school to learn english at the very least).
Worked at a theater that did that from 2006-2012. So it isn’t a new thing.
…every employer i’ve worked with endeavors to put people doing the actual work on salary as soon as possible, so they can harvest that sweet sweet unpaid overtime for maximum profitability…
You can do quite a bit with your pay “pre tax”. Fund your retirement 401k, fund your healthcare plans HSA/FSA, fund child care dependant plan, vision, dental, life insurance… If I said my income was only what hits my bank account then i would be understating my income by quite a bit.
as an american, i have to assume its because its a bigger number. “graphs go up and right, and bigger numbers are better.” is a motto for a lot of terrible practices here.
one of these that has been bothering me lately is when people state something like “ten times less!”. this statement means nothing to me, but it has a bigger number than a % of total.
The other reason likely has to do with taxes. If I was making 50k a year and filing my taxes as a single earner, I’m going to end up with a different take home vs if I was married filing jointly and my spouse made 300k. Plus all of the other things we can have and adjust as deductibles and pretax things like 401k, 403b, Insurance, HSA, etc.