And I’m not talking about the real time and cost of making your employees pay, but all those costs that are often not taken into account when providing the client with a quote or proposal or not included in budgets and financial planning.
The payroll cost burden includes all expenses incurred above an employee’s salary. To arrive at an employee’s true hourly cost, you need to take them into account. Employer participation in FICA, Medicare, and state and federal unemployment taxes are common examples of payroll burden; however, there are others that you should include in your payroll costs.
Workers’ compensation and part of your general liability insurance premiums are based on wages paid. These fees vary from state to state as well as job classification and these costs are part of your payroll burden. You can find out the cost of the premium per dollar of salary paid from your insurance agent.
The cost of paid vacations, sickness, personal and holidays must also be included in the cost of payroll. To do this, determine the number of paid days off an employee is entitled to and multiply that number by the employee’s average daily wage. Then divide by the number of business days in a year (for example, 52 weeks minus 2 weeks of vacation equals 50 business weeks). And then divide by the average number of hours worked in a week, which results in an average cost per hour of paid time off. For example, an employee who pays $ 800.00 for a 40-hour week with two weeks of paid vacation, 1 week of paid sick leave, and eight paid holidays, the calculation would be: 10 vacation days + 5 sick days + 8 Holidays = 23 paid non-working days. $ 800/5 days = $ 160 per day of wages paid. $ 160 x 23 non-business days = $ 3,680 (annual cost of non-business days). There are 260 possible working days in the year (52 x 5) minus 23 non-working days = 237 working days. These 237 working days must be charged with the cost of the 23 paid non-working days. Divide the expense for non-working days by the number of working days ($ 3,680 / 237) which is $ 15.53 per day. Divide the $ 15.53 by 8 hours and you have your hourly charge cost for paid days off. Depending on your company, you may have employees who work overtime or even less than 40 hours a week occasionally. Unless you think this may materially affect your cargo, you can base your figures on the “usual agenda.”
Other expenses to consider are health, dental and / or disability insurance premiums paid by the company (net of employee contributions). And if you are providing a vehicle to your employee, the cost of purchasing, financing, and insuring it may be an expense to include. Additionally, any other employee benefit costs provided by the company should be considered part of the payroll charge.
When all is done, the salary you pay your employee for a day’s work is just the beginning of that employee’s cost. Failure to determine the cost of loading your payroll can reduce your bottom line profit. And without profit we cannot continue in business.