Guest Contributor

7 Things To Consider When Calculating the True Cost of Your Employees

By | Retthansen

Do you know how much it truly costs to hire a new employee? If you think the cost stops at an annual salary, you aren’t thinking big enough. Yes, $50,000 or $60,000 per year is a lot to pay, especially if multiple people work for you. But have you thought about the costs you incur outside of providing weekly paychecks? Before you put up your next job ad, consider this seven outlying factors to determine if you can truly afford to hire a new employee.

1. Unemployment Tax Contributions

For each employee you have, you must pay federal and state unemployment tax contributions. Expect to pay up to $420 per year per employee at the federal level. The amount you owe your state depends on several factors, including whether your company has unemployment claims against it, how many, and how long the claims have existed. Most states cap the rates you pay, and a payroll representative can help you find out what your rate is if you don’t already know.

2. Social Security and Medicare

Your employees must contribute to social security and Medicare programs as part of their taxes, and your company is required to match what your employees pay. Most of the time, you can expect to pay 7.65% of what you paid each employee. Be sure to calculate this amount and add it into the online employee cost calculator so you don’t underestimate.

3. Insurance Premiums

Don’t forget about the insurance you’ll need to supply for each employee. Start with workers’ compensation, which will be a percentage of each employee’s salary. The percentage depends on what tasks your employee is responsible for and whether your company has had claims filed against it in the past. How much do you contribute to each employee for other types of insurance? Remember to calculate the amount for health, vision, and dental plans, life insurance, disability insurance, and any retirement plans that you match.

4. Supplies Provided

The cost of providing an employee with supplies seems minor on the surface, but the price adds up if you have a number of people working for you. Operating supplies range from traditional pens and paper to instrumentation charts and lubrication oils for those who work in manufacturing. Because the category of office supplies tends to be a grey area, there are several ways to calculate it. The percentage can range from just a few percent to up to 20%. A common way to calculate your cost is to do so by employee. The price ranges depending on what industry your business operates in, how large your company is, and what your policies are. On average, a corporation spends about $200 per employee per year on the office supplies it provides.

5. Workspace Provided

The workspace you provide for your employees factors into how much each one costs as well. It’s true that you pay rent for your business property as a whole payment each month, but how much does it cost per employee? To determine the price per employee, you must first determine how much you pay per square foot. The average call center rents at about $20 per square foot. If your employee has an 8’x 8′ cubicle, he or she uses 64 square feet of space, or about $1,280 per month. If you factor in a desk chair and other essentials, you can easily hit the $2,000 mark.

6. Other Provided Equipment

Don’t forget about other essentials. Chances are your employees all need computers to do their work. You want your employees to use high-quality equipment, so you will probably need at least $1,000 for the computer as well as several hundred more for software and telephone handsets. Remember, electronics will require updates as well, which is another price to consider. If you work in a hazardous industry, you may also provide safety equipment such as steel-toe boots, safety glasses, hard hats, and more.

7. Fringe Benefits

What other types of compensation do you provide to your employees? If you provide any of them with a company vehicle, calculate the cost of vehicle depreciation, provided insurance, maintenance and repair, and gas. Annual bonuses typically account for 2.5% of an employee’s salary, and if you offer ongoing education, expect to pay about $500 per year. Travel expenses can soar into the thousands if you have employees who travel often.

Keep in mind that you can’t cut corners to save yourself a few bucks. Employees want to feel valued and to know they are paid fairly. If you try to underpay the people you hire, expect to end up with less-than-stellar employees. Remember, you get what you pay for, and hiring employees is no different.


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