How To Determine the True Cost of Your Employees

The True Cost Of Employees

In addition to the dollars that you added up already, you also want to consider and understand the indirect costs of high employee turnover. Teams take time to build and grow and develop relationships.

Review historical data to ensure your employees are meeting goals. Aging, attrition, and changing financial structures can impact retirement forecasting.


High turnover costs companies a lot of money and overall employee morale and satisfaction takes a big hit. Any time there is a vacancy, it causes more work for the rest of the employees and productivity takes a hit. Especially with the recent COVID pandemic shutting down schools, daycares, and many other resources people rely on, flexibility has never been more important for employees. Many employees find that it’s more productive to work outside of the office or even just outside of normal office hours. Set schedules and strict office hours are necessary for some industries, but any amount of flex is good. Companies that are moving to more flexible work setups will have an easier time with employee retention because it’s something so many people are searching for right now.

  • A benefits package is worth about 30 percent of an employee’s salary.
  • The cost of hiring depends on a variety of factors such as the nature of the role being filled, the length of the search for a candidate, and the salary range for that particular role, among others.
  • Another way to make your employees feel valued is by creating a two-way communication channel where employees and leaders can give each other feedback.
  • Building a holistic employee wellness program helps to boost employee engagement and productivity while addressing health needs that traditional benefits don’t cover.

Another program “How to Manage Up Well” teaches participants the art of maintaining relationships with peers and seniors. SurveyMonkey found that 63% of employees said regular recognition is a key reason for not changing their job. A positive attitude among the leadership team is indicative of a company that is growing and succeeding. This encourages employees to stay – they want to be a part of a company that is going places. Most corporate leadership believe that an employee values their salary over everything else.

Legal Costs

Empower your employees to take some of the administrative burdens from your managers. Employee self-service can reduce administrative expenses and yield ongoing savings. Some companies provide full premium coverage while others offer a limit or percentage. Social Security and FICA can account for 6.2% of the first $90,000 you pay your employee. These costs are pretty set and can be forecast with accuracy. Benefits are an important part of your recruitment and retention strategy. Scrimp on benefits at your own peril, but work to find a good balance between enough and too much.

The True Cost Of Employees

Why should it be any different when it comes to hiring an employee? It is, after all, one of the most expensive decisions involved in running a business. The real cost of hiring an employee in 2022 is not only limited to the monetary amount companies pay for their salary. The costs of benefits can be challenging for your budget; however, having employees who are not happy or The True Cost Of Employees healthy can be even more detrimental. The people you hire will make the difference between whether you fail or succeed as a company, so if managed well, your investment will pay off. For this reason, it’s important to know exactly how much your fixed benefits program and recruitment costs would be on top of your employee’s salary before bringing anyone onto your payroll.

Volume Calculators

Besides federal unemployment tax, there may be state unemployment tax for your area. Requirements vary from state to state, so make sure you are in compliance. Historic data in your time and attendance software can help you forecast. Measure employee participation to make more accurate estimates of benefits adoption and usage. Employee self-service also allows employees to manage their own profiles.

The True Cost Of Employees

A shocking 51% of employees are actively looking for new jobs. This is a popular focus area right now for many companies that are transitioning back from remote work during the pandemic. Offering long-term remote work options for employees could instantly improve your turnover rate. Over half of employees surveyed recently would leave their current job for a more flexible position even if it meant taking a pay reduction. This doesn’t have to mean shutting down your in-person office. Many companies are considering a hybrid model that allows employees the flexibility to work from home or from a different location a few days a week or a few weeks a year. The last cost to figure in is the time that the position is vacant.

Recruiter Costs

On top of that, there are unemployment taxes, which vary by state but can include state income taxes and unemployment insurance. Custom dashboards and reporting capabilities, give your whole organization instant, reliable visibility into all employee costs. You can also get a quick snapshot of total employee costs in relation to your staffing and budget plans so you know if you’re on target or where adjustments need to be made. For example, it’s far more difficult to come up with accurate cost accounting and financial projections without updated employee costs. When you plan and set goals at the beginning of the year, you need to know as the year goes on if you’re on track to hit your sales and revenue targets, or if you’re falling behind.

  • The cost of labor per employee is their hourly rate multiplied by the number of hours they’ll work in a year.
  • Retirement and savings account for 5.4 percent of their total cost, according to the US Department of Labor’s June 2017 Employer Costs for Employee Compensation survey.
  • Compare to other software See how we compare with other financial solutions.
  • Unlimited PTO, travel allowance, medical insurance, sabbatical leave, and so on show employees that the company truly cares.
  • Consider all types and apply a percentage to your calculated employee cost.
  • He has a background in engineering, workplace applications, and business administration, bringing over 25 years of experience deploying strategic HCM applications.
  • This includes Blind Persons Allowance or Disability Allowance.

Accurately calculating employee cost is not just a good hiring practice, it’s an essential budgeting task. Once you have a clear idea of each employee’s costs, this data can be integrated into your business intelligence tools, helping you to effectively track and budget projects and clients.

Mission Vision Values

If you have field service workers, figure in transportation costs. The problem is that this cost is variable, and can increase the true cost of an employee. When deciding how to pay employees in a small business, remember that performance bonuses usually provide a reliable ROI. Performance bonuses are often tied to an income-producing activity. If your company does, they are something to consider for the true cost of an employee.

Turnover rate is an incredibly important statistic for a company to track and improve upon. Most HR teams will look at these numbers over time and help make suggestions to improve it. For instance, according to LinkedIn’s2021 Workplace Learning Report, resilience and digital fluency are the power skills required in 2021.

The True Cost Of Employees

If a business uses an external company in order to help them file their payments, then this would be considered a payroll cost. These costs are unknown and cannot be predicted by the company, unless they take time to define an advertising campaign and plan out their every step. If not tracked correctly, then advertising costs could be sky high, which is why it is important for a company to set a budget and keep a close eye on the campaign itself. The idea of having a company pension scheme has become increasingly popular in the recent years and is in fact mandatory for employers to offer it to their employees.

If the company values are already defined, make sure employees are aware of them. The values should be a part of the hiring and onboarding process.

Health and Safety awareness is required by Law, along with other training courses. Training your staff should include not only working with your employee’s personal qualities, but also developing new skills which they will find helpful while working for you. Depending on the nature of the work, employees frequently receive use of a company car as part of their benefits package. Most people will have Personal Tax Allowance, which is the income in which they will not have to pay tax on, otherwise known as tax-free.

Annual Overhead

Recruitment costs per employee are lower for entry-level positions. Hiring from within your organization allows you to leverage experience. It also lowers costs to entry-level employees where recruitment costs are lower.

For your company to succeed and grow, the entire organization has to believe in its mission, vision, and values. If employees are not aware of the company values, they cannot align their goals with that of the company. There’s another benefit to collecting employee feedback – it helps the business improve operations processes. For it to work, however, employee recognition programs should become a part of the work culture, a part of the business process. Without rewards and recognition processes in place, the barriers we mentioned earlier will come into play and recognition will be a sporadic, random event rather than something employees look forward to. When employees have a platform to give the company, the leaders, and the processes their personal feedback, they feel valued.

That means that an employee that makes $100,000 per year will cost $33,000 just to replace. If you have 40% of your employee base leaving each year, it costs a fortune. This kind of hit in your employees’ productivity is also a hit to your organization financially. A HubSpot report3 found that lost productivity costs U.S. businesses a shocking $1.8 trillion dollars every year. With Whatfix, you can create scalable employee training flows built directly into your website or enterprise applications – allowing employees to learn in the flow of work. It provides segmented, contextual training and development self-help resources to employees in the moment of need, with analytics to measure and improve your training processes. Now that we know the cost of employee training is high and intimidating, it is a valid question to ask whether organizations should bear the cost or not.

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