Contract Series #3: Pay Packages, Tax Homes, and Landing Great Contracts
Understanding Pay Packages Without Getting Played
When you first open your pay package document, if you’re like me, you’ll think, “Oh. Hmm. Wait, what?” It’s fairly complicated, and that’s intentional. As a budding travel nurse, it is paramount that you understand the pay package. A simple mistake could cost you thousands of dollars in just one contract. Most nurses think it’s all about maximizing the pay. That’s the completely wrong way to think about it; rather than maximizing pay, the goal is to maximize the take-home. But, in order to bring the most amount of money home, you need to first understand the pay package.
Pay Package Anatomy
While travel companies handle pay slightly different than one another, one thing stays largely the same: the anatomy of the pay package. So, what makes up a pay package?
Taxable hourly rate - your standard rate of pay per hour that is taxed federally, by the state you live in, and by the state you work in
Lodging/housing stipend - your pay allocated for extra housing costs associated with traveling; this can be tax-free, more on this later
Meals per diem (M&IE) stipend - your pay allocated for meals and incidental expenditures associated with traveling; this can also be tax-free
Overtime rate - your rate of pay per hour for every hour worked in overtime (usually over 40 hours in a work week)
Holiday rate - your rate of pay per hour for every hour worked on a holiday (varies at each hospital)
Your paycheck is split into these sections on purpose. That split matters.
Taxable vs. Non-Taxable Income: Understanding Stipends
Before talking about the two stipends, it’s important to understand if you qualify to enjoy the benefits of the tax-free nature of the stipends.
Who determines whether or not you qualify? The government dog called the IRS. The IRS has determined that four things need to be met to determine if you have a tax home (a tax home is what you need to qualify to get stipends tax-free):
The taxpayer has to perform some of their business near the tax home and use it for lodging.
The taxpayer has to have their living expenses duplicated due to traveling for work.
The taxpayer can’t have abandoned the tax home (and having family live there is a good sign of this).
The taxpayer has to be a temporary worker, so an assignment can’t last longer than 12 months (though some folks take one month off at the 12-month mark if they want to continue working at the facility).
That being said, how does all this apply to you? The stipends (housing and meals) in pay packages are where the real money is. But that’s only the case if you, a temporary worker, have a tax home separate from where you live as a travel nurse. As a soft rule of thumb, I like to target contracts that have the stipends add up to at least a third of the overall pay, and I prefer closer to a half. It will be completely tax-free! That’s some serious firing power.
$100 tax-free is $100 take-home
$100 taxed (federal income, working state income, local income, social security, medicare, state disability insurance tax, state unemployment insurance tax, state family leave insurance tax, state workers compensation insurance tax, etc) can often be close to $30 or less by the time you get the money
Hopefully I’ve clearly conveyed this complex topic, but keep in mind, I’m not an accountant. If you want legal/tax advice, I’d suggest you contact a CPA and/or attorney in your local area.
Taxable vs. Non-Taxable Income: Understanding Hourly Pay
While stipends are king, I’d be remised if I didn’t say that hourly pay is incredibly important. Hourly pay is important for several reasons:
OT - hourly pay directly effects overtime and holiday pay; stipends have no effect
Sick calls - depending on your contract, sick time pay be paid at a percentage of your hourly pay; stipends have no effect
Loan approvals - some mortgage companies don’t include your stipends (since it’s seen as a less reliable cousin to your hourly wage) when calculating how big of a mortgage you can have
As I said earlier, your hourly pay (and OT and holiday pay) are all taxed by several entities. One is the US federal government, and the rate at which you’re taxed will depend on your household income. This does change yearly, but I personally love Fidelity’s breakdown of the tax brackets, which you can find here. The other entity taking some of your money is the state government(s) in which you’re working.
Since state income tax is a large determining factor for how much hourly pay you actually keep, I’d heavily suggest you look at state income taxes before accepting a contract. This also changes yearly, but NerdWallet has always been my go-to resource for all things state tax. Is this really that important? Yes. California’s 1-13.3% vs. Florida’s 0% can make or break a contract.
Taxable vs. Non-Taxable Income: Bringing It All Together
Both the taxable and non-taxable portions of your pay package are of the utmost importance, but the degree to which they’re important depend on your situation entirely.
Do you plan on only working your scheduled shifts, not plan on getting a loan any time in the next couple years, and want the most take-home pay possible? Me too! Focus on the stipends, then. Aim for a lower hourly rate and high M&IE and lodging stipends.
Do you plan on working your butt off doing overtime and/or think you’ll need to apply for a loan in the next few years? Then aiming for a higher hourly rate might be the best course of action. Just make sure before you do, you check the state’s income tax rate!
How Recruiters Think (And Why It Matters)
Remember, recruiters are incentivized to keep you happy and well-paid, but that doesn’t make them genies. Some margin exists with most contracts, but the margin is slim.
Asking for $20/hour extra is likely unreasonable and unrealistic. Ask your recruiter what kind of wiggle room exists with contracts in their travel company. Negotiation isn’t combat. It’s alignment.
Comparing Offers
I use a three-question decision framework when comparing offers for contracts, and the framework is timeless:
What’s my weekly take-home after housing?
What happens if I miss a shift?
What happens if I extend?
Why these three questions? Most nurses don’t know this, but these are the only three questions worth asking. Let me tell you why. And keep in mind, this framework is a filter, not a commandment.
Number one is fairly obvious but has some occult pieces to it. When determining your weekly take-home, you can’t just go off of what the recruiter tells you. You have to see the split between stipends and hourly/OT pay. Then find the state and federal taxes that apply to your situation and multiply that percentage to your weekly hourly and OT pay. You now know how much will be taken out for taxes. Now add the stipends and your hourly/OT pay together. Subtract the taxes. Then, using a tool like FurnishedFinder (my personal favorite website for finding cheap, furnished housing where I travel), learn what average housing costs in the area. Subtract that from the previous number, and you now have your weekly take-home after housing. That’s a science-based number that can be compared to your other contracts.
Number two is equally important as it’s indicative of the unit’s culture. If the contract says travel nurses can be let go for one sick call, it may not be the right fit for you. If you’re confident you won’t get sick or need to call off, then this becomes less important. But it could still be an indicator that the staff and/or management is fairly anti-traveler.
Number three isn’t something you’ll necessarily find in the contract, but it’s something you should ask your recruiter when deciding on a contract. Ask them how often nurses request extension and how often it’s granted. If no nurses request extension, this may be a miserable assignment. If lots of nurses request extension and management grants it to a select few, it’s potentially going to be more competitive. That’s not necessarily a bad thing; it’s just something to keep in mind.
Red Flags
I am a positive person. My family describes me as extremely optimistic. That said, I’d like to provide some red flags in pay packages that I’d caution you to watch out for. These red flags aren’t necessarily no-gos, but you should seek clarification on any of these and exercise a healthy doubt.
Wildly low taxable rate
Vague stipend explanations
“Trust me” language
Pressure to sign fast
Why This Matters Before Contracts
In the end, understanding basic pay package anatomy and your specific pay package offers gives you control. It puts you in the driver’s seat. Using a simple framework to filter pay packages makes contracts less scary and more comparable.
Now that you’ve chosen a contract and accepted a pay package, it’s time to get to work. Welcome to the world of travel nursing. You’ve done the easy part in accepting a contract. It’s time for the hard part: keeping the right contracts. Next, we’ll discuss guaranteeing extensions in units that you like.