How Much Does My Employee Really Cost?

Over the last several years, we have seen a considerable increase in new businesses and individuals working for themselves. Many of these small business owners have become quite successful as a result of keeping their labor force minimal or even non-existent. However, some are finding it difficult to maintain the volume of business needed to remain competitive. Therefore, business owners have been forced to make a decision as to whether they should start hiring employees or increase their current staff to keep up with the pace of meeting their customer demands. This can be a difficult decision, since most often employees can be the most expensive investment your business makes.

When making a decision, it’s important to first calculate the real costs of hiring a new employee. While the percentage varies from industry to industry and from business to business, an employee could costs as much as 40% more than the base pay. These costs include federal and state taxes, health insurance, worker’s comp insurance, paid time off, and retirement benefits. In addition, a business owner must think about the other costs associated with hiring and training a new employee and other hidden costs like perks that employees have come to take for granted.

In recent years, our federal government has passed some tax incentives to encourage businesses to hire new employees and offset some of the costs. However, for the most part, their efforts have had little success.

Other Issues to Consider: A new hire can in fact reduce sales for a time as they learn the new job. For example, a new employee hired to be in charge of billing may miss some customer charges until some experience is gained. A bad hiring decision can be even worse. If a new employee makes it through the first 90 days, typically training and hiring costs can be recovered. The cost of losing an experienced employee and hiring a replacement that needs training can be a big setback to a company’s productivity.

Heintzelman Accounting Services will be happy to consult with and assist your business in calculating your employee’s real costs.