What are the Hidden Costs of an Employee?

The most expensive cost for many service companies is their employees. But exactly how much does each new employee cost?
January 23, 2013 The most expensive cost for many service companies is their employees. And many small-business owners struggle with how to budget for new employees, since many times they underestimate that cost. 

Michelle Edwards, CPA and owner of Trailhead Accounting Solutions, says "most business owners are surprised to learn that on average an employee will actually cost 25 percent to 40 percent above their wages/salary amount."

Here's how much you should expect to add on top of salary to calculate the total cost per employee:
  • Employer share of payroll taxes: +15 percent. Social Security, Medicare and FICA.
  • Paid time off: +10 percent. Vacation, holidays, sick time and jury duty. 
  • Health insurance: +10 percent. It has become traditional now for the employer to split the cost 50-50. 
  • 401K: Many employers match up to 6 percent of the employee contribution.
  • Other perks: +5 percent. Company cars, tuition reimbursement, and holiday bonuses.
There are also indirect overhead costs like office space, supplies, cell phones, computers and more.

How do you calculate your added cost of an employee beyond their salary?

Read the full article at CPA in Erie

Read more Leadership Watch articles. 

Photo: Thinkstock