Can I Ask My Employee For A Breakdown Of Their Finances?

Summary

Summary of "Can I Ask My Employee For A Breakdown Of Their Finances?"

Podcast Information:

• Title: The Ramsey Show Highlights
• Host/Author: Ramsey Network
• Description: The Ramsey Show Highlights offers a quick, daily dose of advice on life and money in under ten minutes. Featuring experts like Dave Ramsey, Ken Coleman, Rachel Cruze, Dr. John Delony, George Kamel, and Jade Warshaw, it’s part of the Ramsey Network and delivered seven days a week.
• Episode: Can I Ask My Employee For A Breakdown Of Their Finances?
• Release Date: June 26, 2025

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Introduction

In the episode titled "Can I Ask My Employee For A Breakdown Of Their Finances?" Joe reaches out to The Ramsey Show seeking guidance on a sensitive managerial dilemma. He grapples with whether it's appropriate to inquire about an employee's personal financial situation to determine their salary, especially after acquiring their business line. Hosts Dave Ramsey and George Kamel provide insightful advice on maintaining professional boundaries while ensuring fair compensation.

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Background: Joe's Business Scenario

Joe explains his current business arrangement and the underlying challenges:

• Acquisition of a Business Line: Joe acquired an employee’s book of business without a financial transaction. Instead, a mutual agreement was drafted ensuring the employee's employment for six months in exchange for their business assets.

  Joe (00:30): "So I have a general idea and it's a lot less than what they're getting paid right now...I actually acquired it for free."

• Employee's Financial Burden: The employee carries significant personal debt from the previously purchased business line, leading Joe to consider if understanding these personal finances would aid in setting an appropriate salary.

  Joe (00:06): "Is it appropriate for me to ask an employee about their personal finances? Try and dig into it to understand what to pay them..."

• Business Performance: Post-acquisition, Joe’s business saw a substantial revenue increase from approximately $300–$400K to over $1 million annually. However, the previous management’s poor financial decisions left the employee with back taxes and operational debts.

  Joe (02:24): "...when you say you bought the book of business, did you write them a check? How did that go?"

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Main Discussion: Appropriate Salary Determination

Joe seeks advice on whether delving into his employee’s personal finances is suitable for determining their compensation. The conversation unfolds as follows:

1. Dave's Initial Inquiry: Understanding Market Rates

   Dave questions whether Joe has established a market-based salary range for the position.

   Dave (00:23): "Is there not a market value range of salary that you already aware of?... or are you just sticking your thumb in the air?"

2. Joe's Admission: Salary Below Market and Personal Debt Consideration

   Joe admits the proposed salary is below market rates but justifies it by the employee's personal debt from the failed business.

   Joe (01:11): "...it's a lot less than what they're getting paid right now. But I also know that they have a lot of personal debt from their business line that we purchased."

3. George's Clarification: Nature of the Acquisition

   George seeks to understand the terms of Joe’s acquisition, emphasizing the mutual benefit and job security provided to the employee.

   George (01:25): "When you said you bought the book of business, did you write them a check? How did that go?"

4. Dave and George's Guidance: Focus on Market Rates, Not Personal Finances

   Both hosts advise against linking salary decisions to personal financial situations. Instead, they emphasize setting compensation based on the employee’s value to the organization and prevailing market rates.

   George (02:58): "We never look at someone's personal finances to figure out how much we're going to pay them... We base it on the value that they are bringing to the organization and what the market rate is."

   Dave (05:03): "You can't justify a nickel beyond that."

5. Establishing a Salary Cap: Avoiding Charitable Pay

   Joe acknowledges that any salary above $85–$90K would be seen as charitable and unsustainable for the business.

   Joe (06:44): "That's true."

   Dave (06:55): "Well, then that's the number."

6. Consequences of Overpaying: Resentment and Professional Strain

   The hosts warn that paying beyond the agreed salary can lead to resentment and negatively impact the professional relationship.

   Dave (07:15): "Guess what happens. You become resentful."

7. George’s Emphasis: Professional Boundaries and Fair Hiring Practices

   George reinforces the importance of treating the employee as any other candidate, ensuring fairness without delving into personal financial matters.

   George (08:00): "Remove all of the history and context and go, this is what I can offer you."

8. Final Recommendations: Stick to Market Rates and Incentivize Performance

   Dave and George conclude by advising Joe to adhere strictly to the established salary cap and consider performance-based incentives to motivate the employee without overstepping personal boundaries.

   Dave (09:01): "Great stuff there. Thanks, Joe, for the call."

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Key Insights and Takeaways

• Maintain Professional Boundaries: Personal finances of employees should remain separate from salary determinations. Intruding into an employee’s financial life can breach trust and lead to resentment.

• Base Compensation on Market Rates and Value: Salaries should reflect the employee’s role, experience, and the standard rates within the industry, ensuring fairness and competitiveness.

• Avoid Charitable Payments: While it’s commendable to consider an employee’s financial struggles, compensating beyond market rates for such reasons can harm business sustainability and professional relationships.

• Use Performance Incentives: Instead of increasing base salary based on personal finances, implement performance-based incentives to reward and motivate employees effectively.

• Professional Hiring Practices: Treat employees or potential hires with the same standards as any other candidate, ensuring dignity and fairness without personal biases.

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Notable Quotes with Timestamps

• Joe (00:06): "Is it appropriate for me to ask an employee about their personal finances? Try and dig into it to understand what to pay them..."

• George (02:58): "We never look at someone's personal finances to figure out how we're going to pay them... We base it on the value that they are bringing to the organization and what the market rate is."

• Dave (05:03): "You can't justify a nickel beyond that."

• Dave (07:15): "Guess what happens. You become resentful."

• George (08:00): "Remove all of the history and context and go, this is what I can offer you."

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Conclusion

In navigating the delicate balance between managing a business effectively and fostering a supportive workplace, Joe receives crucial advice from Dave and George. The consensus emphasizes maintaining professional boundaries, basing compensation on objective market standards, and using performance incentives to motivate employees. By adhering to these principles, Joe can ensure both the health of his business and the well-being of his employees without overstepping personal financial realms.

Transcript

[Joe]

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[George]

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[Joe]

Is it appropriate for me to ask an employee about their personal finances? Try and dig into it to understand what to pay them in the situation that I did buy this person's book of business and in exchange for them having a job, steady income.

[Dave]

All right, before we dive into that, and I'll defer to George on this one, but I'm curious, is there not a market value range of salary that you already aware of? And then are you asking this question in the context of that? In other words, you know, the range of what the market says you should pay somebody with his experience or his or her experience and skill, or are you just sticking your thumb in the air?

[Joe]

So I have a general idea and it's a lot less than what they're getting paid right now. But I also know that they have a lot of personal debt from their business line that we purchased. I know the person has a friend, you know, now we're just work colleagues. You know, there's not really too much friendship. But the answer is I do know.

[Dave]

Okay.

[Joe]

But it's kind of the struggle to keep a good workplace and make sure that they are, in a sense, taken care of. Also because I'm, you know, I'm weaning them off right now. I'm weaning them off being used to be able to live frivolously.

[George]

When you said you bought the book of business, did you write them a check? How did that go?

[Joe]

I actually acquired it for free. So it's actually we had a document drafted that pretty much gave us the book of business in exchange for their employment guaranteed for six months.

[George]

What do they get out of this?

[Joe]

So they get a job. Essentially. They get a job. He's getting paid off the bottom line. He runs one of our branches. We have two branches. It was a big plus for us in terms of going from probably 300 to 400,000 for this year to probably a million plus in revenue. So there's a big benefit on our end. And unfortunately he ran his business into the ground culturally, financially. So that's where we came in. Compliance wise, they didn't get the insurances they needed because of.

[George]

So you swooped in and said, hey, I'll take over and I'll give you a job. And that was the agreed upon deal.

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[George]

So you swooped in and said, hey, I'll take over and I'll give you a job. And that was the agreed upon deal?

[Joe]

Yes.

[George]

Okay, I'll tell you how we view this at Ramsey. And we never look at someone's personal finances to figure out how much we're going to pay them. The only reason we do a budget in the interview process is to make sure that what we pay them is enough for them to live. And so that gives them an out to say, hey, listen, I'd love to take this job, but I can't afford to. I don't. We don't want people going to debt because they took on a job. So we don't do it to say, well, they need 10,000 to live, let's pay them 10,000amonth. I think that's a different situation. So I would not base it on how much debt he has. I would base it on the value that they are bringing to the organization and what the market rate is. Because what you don't want is for them to get underpaid to where they go. Well, I, I can go elsewhere and make more, but I'm in this contract and stuck in this purgatory with handcuffs on because that's not going to create a great employment situation for them, which is only going to hurt you in the end. So give me a ballpark of what you think this role would get paid. What would you pay someone else to run a branch if you hired from the outside?

[Joe]

75 to 80,000 hourly with some bonus based off performance.

[George]

Great.

[Dave]

What were they paying themselves before you bought their business?

[Joe]

It's hard to determine. I went into their numbers. They were pretty much paying themselves out of the business, him and his fiance, anywhere from 15 to $20,000 a month or more on big months.

[George]

And you're telling me that was a poor choice based on how this business was run? He was overpaying himself.

[Joe]

Overpaying themselves, taking on debt they didn't needed. They didn't need. Yes. Spending out of the business. Haven't paid taxes in three years. So he owes back taxes for those, for that business for all through the last three years.

[George]

Wow.

[Joe]

Like he's mentioned like some like 20 something thousand, but you're telling me 80k.

[George]

Is market rate to run a branch in your field?

[Joe]

Yes. I'd say, yeah, that'd be the higher side. You know, with his experience and his rank repertoire and being able to handle sales and logistics.

[Dave]

Okay, but that's a yes. That's a big gap. So.

[George]

Yeah. Is it going to be on him to say I can't take this job? Because it sounds like he has to take it based on the agreed upon contract.

[Joe]

He doesn't have to. So he has an idea. We don't. We don't. Essentially, he's very. He's a valuable asset to the team, but it's just trying to figure out the balance between being a good guy and making sure he's taken care of. That's why I feel like I need to see something. And I know him, like I said, as a, as a friend from prior to business. I actually, long story short, I started helping, started helping build his business. We had disagreements. He, you know, I was like, hey, I need ownership in this thing. It was kind of like a young start. I'm relatively young. And he's. We went down the road of no. So I left, started my own business in the same field now. Now acquired his business line.

[Dave]

Sure. No, I get that. Let me, let me jump in here because I really appreciate your heart. You're a good dude and I love the spirit by which you're entering into this decision. However, you've already pointed out that he was paying himself too much based on the business. And I understand you already have an existing business, but as you talk to us today, you have a pretty good idea the market value you told us, but you also have a pretty good idea about what's a healthy number. And anything above that is you doing charitable work. True?

[Joe]

Correct. Yeah.

[Dave]

What's that?

[Joe]

Charitable work.

[Dave]

What's the max number that you're. Let's forget anything that he tells you in the days ahead as you dig into his finances or the way George.

[George]

Told me, whether he has 500,000 in debt or nothing doesn't matter. It doesn't reflect what you pay him.

[Dave]

That's right. And so what I'm getting at is what's the max number? That's not charitable.

[Joe]

Max number. That's not charitable. 85 to 90. Like not much higher than that. That'd be like the best of the best.

[Dave]

Yeah. You can't justify a nickel beyond that. True or false?

[Joe]

That's true.

[Dave]

Well, then that's the number.

[Joe]

Okay. Yeah. The only reason I guess I was justifying it was the. Was partially the debt. But then also partially like, well, look, we wouldn't have this business line. But I was telling him, dude, there has to be business, a balance. You can't just say, oh, well, you wouldn't have this business line if exactly it wasn't for, you know, what I created. But it's like, well, you wouldn't have a business at all.

[Dave]

Exactly.

[Joe]

We didn't step in. And now his employees are getting way better ratings, better performance. Everything's improved, you know, everything has improved from A to Z.

[Dave]

Correct. So, Joe, that's why I'm just jumping in here to say if you pay him any more than the number you just gave us, you will. And he doesn't make any changes at all. And there's a good chance that he won't make any changes. Correct.

[Joe]

Yeah, there's a good chance. All right. I'm worried about.

[Dave]

Guess what happens. You become resentful.

[Joe]

Yeah.

[Dave]

And then this whole thing just becomes a negative taste in your. Just a nasty taste. So the max number that you've already. That's it. Don't go beyond that. Now you can incentivize him.

[George]

As the business grows, as the bottom line grows, so can his income.

[Dave]

Yeah, but that. It is what it is, my friend. So don't go any more than that. And for that reason, George, I'm going to come back to what you already said. And I wouldn't be digging in too much to this guy's stuff because then.

[George]

It'S going to feel like you're trying to pull a fast one on him based on. And even if it's high or low, I want to treat him like I would any other person who is applying for this job. Give him that dignity and kind of remove all of the history and context and go, this is what I can offer you. And if he becomes resentful or entitled, that's a good sign that he's not the guy for this job.

[Joe]

Yep.

[George]

And it's going to suck to have to go back to the drawing board and hire someone from the outside to run this thing. But that's the healthiest thing for the business.

[Joe]

I'd rather do that.

[Dave]

Yeah, exactly.

[Joe]

Honestly, business numbers, I'd rather hire someone else. Train them.

[Dave]

There you go.

[George]

And because I like you, Joe, I'm going to. I'm going to send you the entree leadership guide to hiring. That's going to help you make the most of this hire and everyone after that. So hang on the line. Christian will pick up. We'll make sure to get that guide over to you, my friend.

[Dave]

Love that. Got to be careful, George, in trying to be kind that we don't make bad business decisions on a personal decision and it ends up affecting the personal. You got to have some boundaries based on kindness but also good common sense for your business. Great stuff there. Thanks, Joe, for the call. Create your free every dollar budget today.

[Joe]

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