San Francisco, CA

Financial Primer on Switching to Part-Time Work

Dessy John

It probably makes more sense than you think

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working on the couchXPS/Unsplash

Most people reading this type of article are full-time, non-remote, salaried employees. While there may be something comforting about having a predictable stable income, it should come as no surprise that we probably put in way more than the 40 hours a week clearly stated on our paychecks, directly or indirectly, in exchange for that stability.

Recently, I was fortunate enough to restructure my job to 30 hours a week, fully remote. My salary was proportionally scaled from its original 40 hours per week down to 30 hours per week, or a 25 percent dip. But how much was it really?

Net compensation and expenses, not gross salary

The first thing to take note of when evaluating the financial cost/benefit behind a decision like this is to take stock of all the different components of both your total compensation as well as any expenses which may change as a result of going part-time. This will vary from person to person based on things like commute, whether kids are in the picture, or a number of other factors. I’ll cover the variables affecting my personal decision as I believe that even though everyone has different numbers, the categories outlined are representative of a very large set of people.

Commuting

The transit cost from my home location to my office in San Francisco was $11.70 round trip. At 5 days a week for 50 weeks a year, that amounts to just under $3k per year. I still commute into the office from time to time by choice, either for especially important meetings or just because I want to, but it’s infrequent enough that I’d consider that cost negligible, and therefore I’d consider just about the full $3k to be a net saving for the year.

Childcare

As a result of my new schedule, we’ve put my daughter in part-time preschool, saving about $3.5k annually. This is obviously a benefit financially, but I also felt a little uneasy having my 4 year old in school for 50 hours a week so this helped me bring some balance into her life as well.

Benefits

Benefits added an extra roughly 20% to my original compensation. Many companies will allow salaried employees to maintain complete benefits of full time employees as long as they continue to work 30 hours a week. It’s worth checking with your employer if that’s the case, as it can and should be looked at as part of your total compensation. Fortunately I was able to maintain full-time employee benefits at 30 hours a week and therefore saw a 0% dip in net compensation on this front.

Progressive tax rates work backwards too

I live in a two-income household. As you probably know, income taxes are progressive as you earn more money. What people often overlook, however, is that the sliding scale also works in reverse when you decrease your income. Our household’s highest joint federal tax bracket as of this writing was 35%. Living in California our highest state tax bracket was about 9%. Since the top chunk of our income is taxed at those brackets, decreasing income also lowers what gets taxed at those brackets. Therefore any income I had forgone would have been taxed at about that combined federal and state rate of 44%.

In total the 25% hit in gross salary only resulted in a net compensation decrease of roughly 9% .
(25% dip in gross salary, subject to 44% combined federal and state tax rate, 0% dip in benefits, and roughly $6.5k saved across commuting and childcare)

Mapping out the time savings

Prior to restructuring my job, a typical day looked something like this:

  • 6:00am — 6:30am: wake up and exercise
  • 6:30am — 7:00am: shower and get ready for the day
  • 7:00am — 7:30am: get daughter ready for the day
  • 7:30am — 7:45am: get daughter to school/daycare
  • 7:45am — 9:00am: commute to work (!!!)
  • 9:00am — 5:30pm: work
  • 5:30pm — 6:30pm: commute home
  • 6:30pm — 7:30pm: dinner, dishes, cleanup, etc.
  • 7:30pm — 8pm: daughter bedtime routine
  • 8:00pm — 9:00pm: relax
  • 9:00pm — 10:00pm: work on stuff i didn’t get to at the office
  • 10:00pm: sleep

Awake for 16 hours, and spending about 12 of those hours on work or work-related activity. At 5 days a week, that’s 60 hours of work excluding any parenting “work”.

Here’s what my day looks like now:

  • 7:00am — 7:30am: wake up and eat a healthy breakfast
  • 7:30am — 8:00am: get daughter ready for the day
  • 8:00am — 8:45am: get daughter to school and drive back home
  • 8:45am — 3:15pm: work (with exercise during lunch break)
  • 3:15pm — 3:45pm: pick up daughter from school and drive home
  • 3:45pm — 6:00pm: be a dad
  • 6:00pm — 7pm: dinner, dishes, cleanup, etc.
  • 7:00pm — 7:30pm: be a dad some more
  • 7:30pm to 8:00pm: daughter bedtime routine
  • 8:00pm to 10:00pm: time with my wife
  • 10:00pm: sleep

Do the full math, then decide

In my new scenario, the 30 hours on my paycheck translate to the 30 hours I actually spend working (down from 60), so per hour I actually got a healthy raise as a result of it all.

What at first glance seemed like a 25% pay cut shaped up to be a net compensation decrease of only 9% in exchange for getting 50% of my day back.

Think about that for a minute.

Say my total net compensation was an even $100k to start with while devoting 60 hours (work commute, etc.) per week to the job. Over about 50 weeks for the year, that equates to an effective hourly wage of $33.33. If only a 9% cut to that compensation is attained on 30 hours per week, that’s $91k in net compensation resulting in an effective hourly wage of just under $60.67. That’s a per hour wage increase of 82%!

For those striving to become financially independent, to redesign their lives with intention, or simply to be more present and healthy, a move into part-time and/or remote work can completely re-calibrate your thinking and open up a positive lifestyle change for your next chapter.

If the idea of making less is holding you back from finding balance and prioritizing what’s most important to you, make sure you know exactly how much less money it would really be, and exactly how much time you could repurpose elsewhere. You may find the math makes it a much easier decision than you expected.

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I am a personal finance writer, covering advice and strategy around building wealth and living a more abundant life. I have 13 years of marketing experience in the tech industry, have built my own wealth, and now aim to do my part in spreading financial literacy to help others.

San Francisco, CA
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