How much does your employee really cost?

Caleena, PracticePlus By April 16, 2019 2 Comments
How much does your employee really cost?

Do you know that the wages you pay your employee is not all that your employee costs?

You would be surprised to find out that your employees cost 25%-40% more than what their wages are.
When you about to hire your next employee, there are some additional employment costs that you have to keep in mind. 

Here are some of them:

Payroll Taxes

Business owners are saddled with the responsibility of paying employment taxes, along with paying salaries of their workers. 

In most cases, these employment taxes are about 15% of an employee’s wages. This includes Social Security, Medicare, local payroll taxes etc. 

As stated earlier, on the average, these taxes cost the employer an extra 15% of the employee’s wages. 

So, if an employee is making about $15/hour, he would cost the employer about $17/hour

Paid Time Off

To create that competitive edge, some business owners offer their employees benefits like paid off days. 

These benefits can span from personal time off, to sick leave and paid breaks (required by employment laws in the region). 

The amount of money the cost of this benefit varies based on different factors. Some of them include the employees’ salaries, the size of the business and the industry standard. 

The company’s geographical location can also be another factor. 

Health Insurance

In most cases, one of the perks of being an employee is the health insurance benefits that they enjoy. 

It is an excellent benefits package for the employees, but it could burn a hole in the pockets of their employers. 

Retirement Savings Benefit

Retirement benefits are another avenue by which employees become more costly for their employers. 

Pension schemes like Simple IRA or 401(k) are the ones commonly used by employers. 

Both the employee and the employers fund the benefits. In most cases, the employer matches the employee’s contribution up to a certain percentage. 

Overhead Costs

There are additional overhead costs that may incur and that must be considered when hiring a new employee. 

They include:

•  New Hire Training – teach them how to do the job and work expectations 

•  Work Space – computer, desk, chair, phone line, phone equipment, office space, etc.

•  Insurance – Workman’s Comp Insurance, licensing & bonding, and other general business insurance.

•  Human Resources Department – hire additional employees to handle the hiring & firing, creating employment forms, drafting employment handbooks, and to keep up with the changing employment laws.

•  Office Supplies – pens, paper, printer toner, whiteout, post-it notes, etc.

•  Payroll Processing – hire payroll processor to generate checks, calculate tax deductions, submit payroll tax deposits to government agencies, filing payroll tax forms,     W-2’s, direct deposit fees, etc.

•  Miscellaneous – uniforms, tools, protective gear, cell phone, computer servers, health club memberships, etc.

Keeping this in mind, an employee whose annual salary is $35,000 will cost the employer about $45,000. To make it easier, if an employee paid an hourly wage of $15/hour, it would cost the employer about $20 dollars.

It is essential to keep these additional hidden costs in mind so that you can budget for them before you hire your next employer.


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