Microsoft Compensation and Benefits Guide
Microsoft offers employees a great compensation package designed to attract and retain top talent. In this guide, we’re going to look at how Microsoft pays employees so you can make the most of your salary and benefits.
Key Takeaways
Microsoft provides a blend of base salary, bonuses, and stock awards to reward employee performance.
Microsoft also gives employees access to a great 401(k) plan, as well as a mega backdoor Roth conversion and an employee stock purchase plan.
The company offers extensive healthcare coverage, including comprehensive health insurance and a health savings account.
Compensation for Microsoft Employees
As a Microsoft employee, your compensation starts with a salary, annual bonus, and restricted stock units (RSUs).
Microsoft Salary
As with most companies, the primary form of compensation for Microsoft employees is a salary. Microsoft salaries vary by role, experience, and location. The company’s structured level system helps determine compensation, with each level corresponding to specific roles and responsibilities. For example, a Level 59 software engineer has a median total compensation of $171,000, while a Level 69 software engineer can earn up to $1.05 million.
Regardless of the level of an employee, Microsoft salaries are competitive. Employees can expect reasonable compensation when compared with other tech giants. And as you climb the levels within the Microsoft structure, your compensation will increase.
However, your base salary will decrease as a percentage of your total compensation package, while the rate of bonuses and RSUs will increase. For example, as a Level 59 software engineer, your base salary will make up about 70% of your total compensation. At Level 67, that percentage will go down to less than 50%.
Bonuses
Microsoft's bonus structure is designed to reward employee performance and align individual contributions with the company's success.
Annual cash bonuses: Employees are eligible for annual cash bonuses, typically paid in September. These bonuses can range from 0% to 40% of an employee's base salary, with higher percentages often awarded to those in more senior positions. For instance, a Level 59 software engineer might receive a bonus, adding approximately 15% to their base salary, while a Level 67 employee could see up to a 30% increase.
On-hire cash bonuses: New hires may receive on-hire cash bonuses as part of their initial compensation package. These bonuses are typically paid within the first 30 to 60 days of employment and, in some cases, may be split into two separate payments.
Performance-based incentives: Microsoft also offers performance-based incentives to recognize exceptional contributions. These incentives are determined based on individual performance metrics and the company's overall financial health.
Restricted Stock Units (RSUs)
RSUs are a significant part of Microsoft's compensation package. Unlike stock options, RSUs don’t require you to buy any stock yourself. The shares are given freely as compensation.
Your RSUs vest gradually over time, typically in four or five years. As they vest, you will gain ownership of the stock they represent, and you can sell your shares or hold on to them. Holding may result in capital gains or losses, depending on the stock's performance.
Upon vesting, the value of the RSUs is considered ordinary income and is subject to taxation. Microsoft employs a "sell-to-cover" method, where a portion of the vested shares is sold to cover the tax liability. However, depending on an individual's tax bracket, this may not fully cover the tax owed, potentially leading to additional tax liabilities.
Microsoft Retirement Saving Plans
Microsoft offers several benefits to help you save for retirement, starting with a robust 401(k).
Microsoft 401(k) Plan
In 2024, Microsoft employees can contribute up to $23,000 to their 401(k) accounts ($30,500 for employees aged 50 or older). These funds can be invested in a variety of stocks, bonds, and funds to help grow your wealth over time.
Microsoft matches 50% of employee contributions up to the IRS limit. This means that if you contribute the full amount, Microsoft adds an additional $11,500 for free. Best of all, both your contributions and Microsoft's matching contributions are immediately vested. You have full ownership of all funds in your 401(k) account right away.
Mega Backdoor Roth Conversion
Using the mega backdoor Roth program, Microsoft employees can contribute after-tax dollars to their 401(k) accounts beyond the standard limits. These after-tax contributions can then be converted to a Roth 401(k) or rolled over to a Roth IRA.
In 2024, the IRS allows a total of $69,000 in 401(k) contributions ($76,500 after age 50). That total includes employee contributions, employer matching, and after-tax contributions. If an employee under age 50 contributes $23,000 to their 401(k) and receives the $11,500 employer match for a total of $34,500, they can contribute an additional $34,500 in after-tax dollars, which are then converted to Roth funds.
Benefits of a mega backdoor Roth conversion include:
Increased retirement savings: This plan allows for contributions beyond standard limits, significantly boosting your retirement funds.
No Roth income limits: Unlike a standard Roth IRA, the mega backdoor Roth does not have an upper-income limit, so even high-earning employees can get the benefits of a Roth savings account.
Tax-free growth: Once converted to Roth, the funds grow tax-free, and qualified withdrawals are also tax-free in retirement.
Tax diversification: Converting some of your 401(k) funds to a Roth account will give you a tax-free source of income during retirement, offering greater flexibility in managing tax liabilities.
Employee Stock Purchase Plan (ESPP)
The Microsoft ESPP sells company stock to employees at a 10% discount. Participants can use up to 15% of their cash compensation for these purchases, subject to an annual IRS limit of $25,000.
Eligible employees can enroll in the ESPP during designated enrollment periods. Contributions are made through payroll deductions, allowing for gradual investments rather than lump-sum payments. Then, the stock can be held for long-term gains or sold for quick returns.
Deferred Compensation Plan (DCP)
The Microsoft DCP lets employees defer a portion of their salary and/or bonus until a future year. This reduces taxable income for the current year. Like a 401(k), the deferred funds can be invested for long-term growth.
The DCP is available to employees at Level 67 or higher. Enrollment occurs during two annual windows:
In May, you can elect to defer up to 100% of the following year’s September cash bonus.
In November, you can elect to defer up to 75% of the following year’s salary.
Employees must choose a distribution schedule at the time of deferral, with options including a lump-sum payment or annual installments over a set number of years (e.g., 5, 10, or 15 years). Distributions are taxed as ordinary income upon receipt.
While the DCP offers valuable tax-deferral benefits, the deferred funds are unsecured and subject to Microsoft's financial health. And once you’ve made your elections for the following year, you cannot change them until the next deferral window. This could cause problems if you have unexpected financial needs.
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Microsoft Insurance and Health Benefits
Healthcare Benefits
Microsoft provides comprehensive medical, dental, and vision insurance plans, ensuring employees and their families have access to quality healthcare services. These plans cover a wide range of medical services and include preventive care.
Health Savings Account (HSA)
An HSA is a tax-advantaged account designed to help individuals save for medical expenses. At Microsoft, employees enrolled in a high-deductible health plan (HDHP) are eligible to participate in the HSA program, which offers several financial benefits.
Pre-tax contributions: Contributions to the HSA are made with pre-tax dollars, reducing your taxable income.
Tax-free growth: Funds in the HSA grow tax-free over time.
Tax-free withdrawals: Withdrawals for qualified medical expenses are tax-free.
For 2024, the IRS has set the HSA contribution limits at $4,150 for individuals and $8,300 for families. Employees aged 55 or older can make an additional catch-up contribution of $1,000. These limits include both employee and employer contributions. Microsoft contributes $1,000 to $4,375 to all employee HSAs, with the amount based on the employee’s level and family size.
Flexible Spending Account (FSA)
An FSA lets employees set aside pre-tax dollars for eligible expenses. While HSAs require enrollment in a high-deductible health plan (HDHP), FSAs are available to all employees. Microsoft offers two primary types of FSAs.
A healthcare FSA covers qualified medical, dental, and vision expenses not reimbursed by insurance.
A dependent care FSA covers expenses related to the care of dependents, such as daycare, enabling employees to work.
For the 2024 plan year, employees may contribute up to $3,050 to a Healthcare FSA and up to $5,000 to a Dependent Care FSA. These contributions are deducted from each paycheck before taxes, lowering your taxable income.
FSAs typically operate under a "use-it-or-lose-it" policy, meaning funds must be used within the plan year or risk forfeiture. However, Microsoft allows employees to carry over up to $640 of unused Healthcare FSA funds into the next plan year, providing additional flexibility.
Life Insurance
All eligible employees receive basic life insurance coverage at no cost, equal to two times their annual salary. Employees have the option to purchase additional life insurance coverage, up to 10 times their annual salary, with a maximum limit of $2.5 million. Premiums for supplemental coverage are age-based, and higher coverage amounts may require evidence of insurability.
Additionally, Microsoft offers life insurance options for spouses and children up to age 26. Employees can elect coverage for their dependents, providing additional financial protection for their families.
It's important to note that Microsoft's life insurance policies are not portable. If an employee leaves the company, the coverage does not continue. Therefore, employees should consider obtaining additional life insurance outside of Microsoft's offerings to ensure continuous coverage.
Perks+
Microsoft's Perks+ program reimburses employees for certain expenses related to physical, mental, emotional, and financial health. The program covers a wide range of expenses, including:
Gym memberships and fitness classes
Exercise equipment
Mindfulness and meditation programs
Financial planning services
Caregiver support services
Perks+ builds upon Microsoft's previous "Stay Fit" program, which reimbursed employees for only fitness-related expenses. The expansion to Perks+ reflects Microsoft's commitment to addressing a broader spectrum of employee well-being, including mental and financial health.
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Microsoft Home and Family Benefits
Relocation Package
If you have to move to a new location to work for Microsoft, they may help by covering your moving costs. This is the Microsoft relocation package. Microsoft provides two primary relocation assistance options:
Lump-sum payment: This is a fixed cash benefit provided to cover various moving expenses. The amount ranges from approximately $12,000 for cross-country relocations to $25,000 for international moves.
Comprehensive relocation package: This option includes services such as professional packing and shipping of household goods, temporary housing assistance, coverage for transportation costs, and support for selling or terminating the lease of the current residence.
Microsoft has also introduced flexible work arrangements, allowing employees to work remotely up to 50% of their work hours or even fully remotely with managerial approval. Employees opting for permanent remote work may relocate domestically or internationally. However, in these cases, Microsoft typically does not cover relocation costs.
Sabbatical
Microsoft offers a sabbatical program to recognize and reward long-term employee commitment. After ten years of continuous service, eligible employees can take an eight-week paid sabbatical in addition to their standard paid time off.
Parental Leave
Mothers and fathers working at Microsoft can take time off after the birth or adoption of a child.
Birth mothers are entitled to up to 20 weeks of paid leave, combining eight weeks of maternity disability leave with an additional 12 weeks of parental leave.
Non-birth parents, including fathers and adoptive parents, receive 12 weeks of paid parental leave.
Employees have the option to take parental leave in one continuous period or split it into two segments. Additionally, a phased return to work on a part-time basis is available, facilitating a smoother transition back to professional responsibilities.
Family Sickness Leave
Microsoft offers weeks of paid leave to care for an immediate family member with a serious health condition, providing employees the necessary time to support their loved ones during critical moments.
Employee Giving Program
Microsoft's Employee Giving Program matches employee monetary donations to eligible nonprofit organizations dollar-for-dollar, up to an annual maximum of $15,000 per employee. This matching applies to a wide range of 501(c)(3) nonprofits and educational institutions.
In addition to financial contributions, Microsoft values employee volunteerism by matching volunteer hours at a rate of $25 per hour. This means that for every hour an employee volunteers, Microsoft donates $25 to the same organization.
The Employee Giving Program operates throughout the year, allowing continuous participation and support for various causes. In a single year, Microsoft employees volunteered more than 1 million hours and donated a record-breaking $250 million to nonprofits around the world.
Tuition Reimbursement
Eligible employees can receive up to $10,000 annually to cover tuition, books, and fees for courses related to Microsoft's business at accredited institutions. To be eligible, the following must be true:
You are a full-time employee of Microsoft.
The courses are related to your current role or career development within Microsoft.
Your manager approves your participation in the reimbursement program.
The $10,000 reimbursement limit resets each calendar year, with no lifetime cap, allowing continuous educational advancement. Reimbursements exceeding $5,250 per year may be considered taxable income under IRS regulations.
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FAQs
Does Microsoft offer flexible work arrangements?
Microsoft supports various flexible work options, including remote work, telecommuting, part-time schedules, and job sharing. Employees can work remotely up to 50% of their work hours — or even fully remotely with managerial approval.
Does Microsoft offer any programs to support employee well-being?
Yes, Microsoft provides comprehensive well-being programs, including the Perks+ program, which reimburses employees for expenses related to physical, mental, emotional, and financial health. This includes gym memberships, fitness classes, mindfulness programs, and financial planning services.
What professional development opportunities does Microsoft have?
Microsoft offers various professional development opportunities, including:
Mentorship programs
Leadership training
Online and in-person development classes
Employees also have access to Microsoft Learning and LinkedIn Learning platforms.
Will Microsoft help me move for a new job?
Microsoft provides relocation assistance to new employees, which may include a lump-sum payment or a comprehensive relocation package covering services such as professional packing, temporary housing assistance, and transportation costs. The specifics of the relocation package depend on the employee's role and location.
What types of insurance coverage does Microsoft provide?
Microsoft offers various types of insurance, including life, disability, and health insurance. Life insurance coverage is provided at no cost, equal to two times an employee's salary, with options to purchase additional coverage.
Does Microsoft offer student loan repayment assistance?
Yes, Microsoft partners with SoFi to offer employees reduced interest rates on student loan refinancing, including a 0.25% discount for Microsoft employees.
What is Microsoft's policy on sick leave?
Microsoft provides employees with 10 days of sick leave per year, allowing them to take time off for illness or medical appointments.
Does Microsoft offer any assistance for adoption?
Yes, Microsoft offers adoption assistance, providing up to $10,000 per child to help cover adoption-related expenses.
Does Microsoft offer any assistance for housing?
Yes, Microsoft provides a housing stipend to assist employees with housing expenses.
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