Bryan Dear’s Blog

If a cluttered desk is a sign of a cluttered mind, then what are we to think of an empty desk? Albert Einstein, 1879 – 1955

Let’s say I’m paying an employee $15 an hour. What is their actual cost to the company?

It depends.

The employer pays taxes on top of the employee wages. For example there is Medicare on all wages, Social Security on the first $106,800 (for 2010), the Federal Unemployment rate of .8% on the first $7,000 of the employee wages and the state unemployment rate which is probably capped on the first $10,000 to $25,000 of wages. A rule of thumb we use, without going into detail, is about 12% of their rate of pay. So, if the employee is paid $15 an hour, it costs the employer $16.80 an hour. However, if you have a high unemployment rate (5% or higher or you state unemployment wages are not capped), this will change this equation.

The employer also needs to factor in workers’ compensation insurance which is required in most states. Depending on the industry, this can add anywhere from 2% to 33% on top of the 12% factored in above. An employee in the roofing business may be costing the company 45% more in taxes and workers’ compensation over the rate paid to the employee because of high workers’ compensation insurance.

If there is a match retirement program such as a SIMPLE plan or a 401K plan, the employer match will need to be factored.

Then there are soft costs: Vacation, Sick, Personal and other paid time off. There may be health insurance and other fringe benefits. There is the administration cost just to handle these aspects. If you as the the employer link employee paid hours directly to what you are able to bill, there is the unbillable time in which you are paying the employee, but cannot recapture from your customer.

Truly, employees are an investment for your company. The additional costs are sometimes hidden and can be a surprise. However, I think the additional benefits are sometimes hidden as well.

Know your costs – minimize the surprises.

Sincerely,

Bryan Dear

www.payrolldept.biz

This entry was posted on March 15, 2010 at 6:15 pm and is filed under Payroll - General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.