Do you ever wonder how much it actually costs to hire someone? Have you
tried to calculate the value of one of your employees? It’s not an easy
feat. Good news for employers: we have an answer. It’s going to require
research and math, but it’s a worthwhile process that can help you
uncover the hidden costs of running your business.
Who better to answer this question than a team of HR professionals who
know all the ins and outs of hiring? Let’s see what the experts at HR
Support Center’s HR On-Demand would recommend for figuring out the true
cost of hiring an employee.
We would like to calculate the actual cost of employing someone to help
us with cost analysis, bidding jobs, and pro forma financial statements.
How should we do this?
Answer from the HR Pros:
Determining the “true cost” of an employee is more complex than most
people realize. First, you need to determine the cost for each of the
items below. Then, to calculate the actual cost of an employee, you add
up the annual amount of each of these items.
* The employee’s annual base wage.
* State Unemployment Tax Contributions (SUTA) – Your company’s rate
will depend upon its experience rating with unemployment claims and its
length of time in existence. In most states, there is a wage base cap on
your rates. If you do not know your rate, your payroll representative
can generally provide it to you.
* Federal Unemployment Tax Contributions (FUTA) – This ranges from
$42/year to $420/year for each employee. Where you fall depends on the
credit the federal government allows you to take for your SUTA payments.
* Social Security Match/Medicare Match – This is generally 7.65% of
the employee’s annual wages.
* Workers’ Compensation Premiums – This is a percentage of the
employee’s annual salary. The rate varies based on the employee’s job
duties and the employer’s experience rating with claims. Your workers’
compensation carrier can tell you how much you pay for each employee.
* Health, Dental, Vision, Disability, Life Insurance Contributions
– Include the amount the company contributes towards each of these
* Retirement Plan Contributions – Include the amount the company
contributes annually to the employee’s 401(k) plan.
* Bonuses, profit sharing, stock options, and similar benefits you
Depending on the level of employer contribution to benefits, you will
most likely find that the true cost of an employee is somewhere between
120% and 140% of their gross base wages. If you want to estimate the
true cost of all of your employees, we recommend performing this
calculation for a few employees and then coming up with an average
percentage to use across the board.
Note that the same calculation would be useful in determining the cost
of retaining employees. You may also want to factor in the costs of
running a training and/or HR department.
This content came from a team of HR professionals at HR Support Center
and HR On-Demand. Businesses like yours can pay a yearly fee for this
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The list goes on. HR Support Center is not only feature rich, it’s
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