Computing the Total Compensation for a Professor
Response to the following problem:
Eunice Burns is a new assistant professor of phrenology at the University of Winnemucca. Her academic year salary is $30,000. In addition, she receives a summer salary equal to two-ninths (approximately 22%) of her academic year salary. The university agrees to contribute an amount equal to 7% of Eunice's academic year salary to a pension fund. Eunice acquires legal title to these pension contributions only if she stays at the university for five years or more. Historically, approximately 60% of new assistant professors have remained with the university at least five years. The university withholds $840 per year from Eunice's salary as her contribution to medical coverage. It costs the university $3,000 per year per employee for medical coverage. Eunice has a term-life insurance policy through the university because of the favorable group rate she can get. The $300 annual cost is withheld from her salary. If she were to get the same insurance on her own, it would cost $450. The FICA tax rate is 7.65%. This amount is withheld from Eunice's pay, and in addition, the university must match this amount and pay it to the federal government. Federal income taxes totaling 15% of income are withheld from Eunice's pay. Both the FICA tax and the federal income tax withholding are applied only to Eunice's academic year salary; no amounts are withheld from her summer salary
You have just been hired as an assistant to the chief financial officer of the university. You have been asked to compute the total cost to the university of having Eunice Burns on the faculty.
Write a one-page memo to the chief financial officer of the university outlining your calculations. Be sure to explain any assumptions that you make.