Tuesday, January 24, 2012

ACTUAL COSTS OF HIRING EMPLOYEES

Looking at your budget and now ready to hire?


Every new business owner struggles with when to hire employees, hiring the right employees, and whether or not they can afford it.  A common question that tends to come up is "How much does this employee actually cost?" This is important to know when doing your budget.  The business owner needs to account for all the costs associated with the employee and not just the hourly wage or salary wage given.

First, let's just start with the bare minimum.  In GA, a business owner can expect to pay about 11% more than just the employee hourly wage or salary wage given.  Where does this 11% number come from?  As everyone  knows, the employer is required to withhold Social Security and Medicare from the employees income**.  What some new business owners forget is that they have to pay the company portion of Social Security and Medicare as well.  This additional amount is equal to 7.65% of the employees pay.  Next, there is State and Federal Unemployment.  In GA, a business just starting to have payroll will start out with a State Unemployment rate of 2.7% .  The Federal Unemployment rate in GA currently is 0.9% (with credit reduction).  A lot of new business owners are shocked when they file their first payroll reports.  So a business owner just starting out with payroll needs to budget about 11% more than the actual wages.

Above is just the minimum.  Other factors that need to be considered are workers compensation insurance, supplies for employees, office space requirements, training, and employee benefits.  

If you have any questions regarding employees and payroll please contact us or leave us a comment.

**Payroll taxes withheld from employees payroll is referred to as Trust Fund Taxes

9 comments:

  1. If we could just figure out how to run a business without hiring anyone, wouldn't that be nice.

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  2. Unless one is skilled in payroll it is best left to the professionals.

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  3. How I wish that this was also implemented in our country. Employees tend to get salary/compensation below minimum wage.

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  4. A lot for people will appreciate that info.

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  5. Josh! Great post. I hope you don't mind my posting this, but this is just perfect in the context of your post here. I have a video on using MS Excel to plan your new hires:
    http://youtu.be/_fWgQGHivQ0

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  6. Thanks everyone for the comments. Payroll is definitely something that should be taken serious and budgeted for.

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  7. I use to lecture people on this topic and your articles did a very good job of hitting the actual costs associated with hiring and why it is really essential for an HR department to make the right choices.

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