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:

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