The payroll burden
And I don’t mean the actual time and cost of making your employees pay, but all those costs that are often not taken into account when providing a quote or proposal to a client or not included in budgets and planning. financial.
The payroll cost charge includes all expenses incurred in excess of an employee’s salary. To arrive at the true cost per hour of an employee, you need to take this into account. The employer portion of FICA, Medicare, and state and federal unemployment taxes are common examples of the payroll burden, however, there are others to include in your payroll costs.
Worker’s 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 charge. You can find out the premium cost per dollar of wages paid from your insurance agent.
The cost of paid vacation, sick, personal and vacation 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 it by the employee’s average daily wage. Then divide by the number of work days in a year (for example, 52 weeks minus 2 weeks of vacation equals 50 work weeks). And then divide by the average number of hours worked in a week, resulting in an average cost per hour of paid time off. For example, an employee paid $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 business days in the year (52 x 5) minus the 23 non-business days = 237 business days. These 237 business days must be charged with the cost of the 23 non-business days paid. Divide the expense for non-business days by the number of business days ($3,680/237) which is $15.53 per day. Divide the $15.53 by 8 hours and you have your charging cost per hour for paid days off. Depending on your company, you may have employees who work overtime or even less than 40 hours a week from time to time. Unless you think this may materially affect your load, you can base your figures on “usual order of business.”
Other expenses to consider are company-paid health, dental and/or disability insurance premiums (net of employee contributions). And if you provide a vehicle to your employee, the cost of purchasing, financing and insuring that vehicle may be an expense to include. In addition, any other cost of employee benefits provided by the company should be considered part of the payroll charge.
When all is said and done, the salary you pay your employee for a day’s work is just the beginning of that employee’s cost. Not determining the cost of your payroll charge can reduce the earnings from your bottom line. And without profit we can’t stay in business.