What It Costs Companies to Keep An Employee On the Payroll

Political Calculations linked to the post that I submitted to the Festival of Frugality a couple of weeks ago and in taking a look around the site I found this interesting calculator in a post called: How Much Does it Cost to Employ You?

The calculator allows you to enter some numbers which calculate how much it costs your employer to keep you on the payroll.  It wasn’t as simple for me as I don’t work full time, I only work 32 hours. Ironman, the author of the Political Calculations blog explained that I could calculate my hourly wage and still use the calculator. I did do that, but the lower half still wanted to calculate a salary based on full time.

Also, it shows in the second portion how much is estimated that my employer pays for my health insurance.  My employer pays almost six hundred dollars a month for each employee, which is nearly twice the estimate on the calculator. Based on my results, it looks like my employer pays $6.50 above what I’m paid.  We do have health insurance, as I mentioned, but no retirement benefits.

The other costs for employers are the overhead of your office, electricity, phones, etc.  A smart business owner who has had financial training would calculate these things down to the penny, to know exactly how much money it was costing them to keep one person versus another on the payroll.

Which leads me to ask the question, when does the amount employees are paid become a matter of hiring vs. not hiring?

Most employees at Walmart don’t bring in money for the company as say an automobile salesperson would do for a car company. But the Walmart employee can indirectly affect his value to the company in the way he performs his job.  If he is asked where the mini-recorders are at, and he tells the customer they don’t carry such a thing, he just cost the company money, unless the customer is tenacious enough to peruse the store until the item is located. If the employee is grumpy while cashiering, maybe the customer will start patronizing Target instead rather than deal with the bad attitude.

At that point, it would behoove Walmart to have quarterly reviews of employees and regular training to make sure they know perform in ways that encourage customers to come back and shop there.

An auto dealer would definitely want to keep the highest selling salespeople on board as they are well able to earn their keep.

If your business sends out technicians to work with customers, you pay your technicians $25 an hour but the business can command $80 an hour, it would be a good idea – if there is enough demand – to hire more technicians.   It would actually be a bad business move to try and keep only two technicians on board if you had enough demand to employ four. The more money your technicians make, the more money you would make in the end.

I’d be interested to see what you think Political Calculations’ calculator.

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17 comments to What It Costs Companies to Keep An Employee On the Payroll

  • That’s interesting to think that it costs the company quite a bit more hourly to employ any one person. My school district pays for my health benefits and my husbands, I’m sure the actual amount they pay towards my salary is a good $10-$12 bucks more than what they pay me!

    [Reply]

    Mrs. Accountability Reply:

    @Little House, yes, very interesting and makes me wonder how small businesses can afford to continue doing business with numbers like that.

    [Reply]

    Kevin Reply:

    @Little House,

    I heard that a good rule of thumb is to double your salary in order to take into account the amount the company is spending in total to keep you engaged with the company.

    [Reply]

  • I guess that is why it is good to have high level consultants or whatever in a company, to balance out all the payroll costs. Also, when I worked, I was part time from home and my overhead was minimal. The only overhead was payroll processing and laptop rental. So, they made a killing off me. So maybe for every employee they lose money, on, there is someone else they make money on?

    [Reply]

    Mrs. Accountability Reply:

    @Everyday Tips, you would hope they make money on some employees. I guess it really depends on the kind of business one is running. Say for example, clerks at Walmart don’t really bring in money per se, I mean, they can have an effect at a minute level in that they don’t seem to know what the store carries, so I might stop looking and go to Target. Salesmen probably need to bring in more than they are making in order to stay in the position. Interesting to think about.

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  • Sandra Jensen

    So much hidden cost! No wonder companies are so slow to hire now.

    [Reply]

    Mrs. Accountability Reply:

    @Sandra Jensen, well like I was just saying to Everyday Tips, it really has to depend on the company. A fast food company must have enough employees to do the cooking, cleaning, cashiering, etc., so they don’t have a lot of choice. But in a company where the employee is going to actually bring in more money for the company than he or she is paid will actually help the company. You know like if you have an instructor working one on one with clients. You pay your instructor $25 ($35 after all the added extras) but the instructor is working with clients who are paying you $110 an hour. In that case, it would be to the business owners advantage to hire more instructors to take on more clients. Again, this is an interesting topic.

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  • interesting. my numbers worked out to $5.39 more, which is probably 1/5 of one payroll staff member’s hourly rate. if everyone made my salary, it would cost the company $2400 per hour to pay us all. and i know that the majority of people in my building alone are making way more than me. guess it’s a good thing our company is so giganto

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    Mrs. Accountability Reply:

    @michelle, that does probably help when the company is larger. They can get better deals on insurance rates, too which can lower their costs.

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  • Mrs. Accountability wrote:

    The calculator allows you to enter some numbers and see how much it costs your employer to keep you on the payroll. It wasn’t as simple for me as I don’t work full time, I only work 32 hours.

    It will still work if you enter your hourly pay. If you enter your annual pay, you’ll need to divide by 1664, which is the total number of hours you would potentially work each year at 32 hours per week.

    Also, it shows in the second portion how much is estimated that my employer pays for my health insurance. My employer pays almost six hundred dollars a month for each employee, which is nearly twice the estimate on the calculator.

    The values for health insurance are either the average for the entered size of company and policy type for your state (if selected) or for the entire United States (if no state is selected.) The actual cost of a policy at a given employer can be either higher or lower, as you found. The actual costs that your employer pays is definitely something to think about in considering how competitive your employer might be with respect to other companies.

    [Reply]

    Mrs. Accountability Reply:

    @Ironman, thanks for the clarification. I did enter my hourly pay, it was still kind of wonky at the bottom since it wanted to calculate out full time pay. Even so I think it’s a great tool for people to get an idea what employers are paying above what they are paying the employee. Another factor is the cost for the person’s office (rent/mortgage on the building), electricity usage, phone, etc. As you say, good things to think about when wondering if the grass is greener on the other side. Thanks for visiting and commenting!

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  • Both my previous and current employers send out a personal compensation report to all employees letting them know exactly how much it costs to employ them! They break out the costs of all benefits, salary, and payroll taxes.

    [Reply]

    Mrs. Accountability Reply:

    @Khaleef @ KNS Financial, wow, that’s interesting! I can’t imagine my employer doing such a thing. I would think it would have an effect of making one appreciate one’s employer all the more when you know how much more they are paying to keep you around. Thanks for visiting and commenting!

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  • My employer actually gives us such a statement every 2 years ago. It breaks down exactly what they pay on our behalf so that we so what our real “total compensation” is. It’s eye opening really when you think of the cost of insurance, Social Security and taxes.

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  • @Sandy, very interesting. I don’t think most people get to know these kinds of details normally. I know I never knew until I started doing payroll at my job. Now I know more than I ever wanted to know! LOL! Thanks for visiting and commenting!

    [Reply]

  • Hm. It’s hard to buy into this guy’s calculating tool, since he manages to turn the cost of hiring an employee into a rant against Obama. It’s been costing employers one heckuva lot more than an employee’s salary for a long, LONG time before Barack Obama came along. People who do this kind of thing — convert every fact of life into an anti-Obama rant — lose credibility real fast, in my book.

    Long before the Democrats took back the White House, I heard that on average the real cost of your salary to an employer is 40 percent more than your gross pay. If you add up the costs of your benefits plus the cost of overhead plus the cost of FICA, you come to just about that, sometimes more depending on what you do. Obviously, it’s in an employer’s interest to outsource your job — preferably overseas, to people who will do a day’s or a week’s work for what you earn in an hour. It’s even in the employer’s interest to outsource your job to Americans, especially during a depression when many of us are so desperate we also will work on a contract basis for Third-World wages with no benefits.

    Similarly, it’s useful to fill a full-time job with two part-timers who are ineligible for benefits. This is why 80 percent of faculty at the Maricopa County Community Colleges (with Dade County, one of the two largest community college systems in the country) are part-timers. When you run my pay through the calculator, you see I cost the District 14 percent more than it pays me, if you assume I’m on full-time. But because I’m not, I cost even less than that.

    Making your kids go hungry and go without medical care is a great way for employers to save money. ;-)

    [Reply]

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