Skip to content

Workforce Management

What Is the True Cost of Hiring Someone?

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.

Question:

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

benefits.

* 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

may offer.

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

service and receive awesome subscription perks like these:

* Legal advice

* Employee handbook help (creating a new one or updating an existing

one)

* Custom HR forms, letters, tools, and other documents

* Tons of Q&A

* News on government activity that could affect you

* Training on common HR activities like hiring

* Thought leadership articles

The list goes on. HR Support Center is not only feature rich, it’s

inexpensive: one entire year of

HR

Support Center is cheaper than one hour of a typical attorney’s

time.

Contact

us today to sign up.


subscribe to Paycor's Resource Center

Subscribe to Our Resource Center Digest

Enter your email below to receive a weekly recap of the latest articles

from Paycor’s Resource Center.

MktoForms2.loadForm("//app-ab01.marketo.com", "003-JWW-697", 1796);

Check your inbox

for an email confirming your subscription. Enjoy!