Select Page

When a business decides to add a new employee, they’re really making a financial decision.

Certainly, the motivating factors behind the decision to hire an employee may be:

  • Handling increased workflow
  • Decreasing work hours experienced by you or the current members of your team
  • Adding specific skillsets and experience to your staff

However, businesses should include the financial impact of the actual employee cost on their budget before making a hiring decision.

Below, we’ll share how you can determine employee costs.

If you are considering hiring employees for your business, you might want to explore alternative ways you could reduce employee costs. One way would be hiring the services of a virtual assistant firm like Business Solutions Unlimited. We’d be happy to assist you in making a hiring or outsourcing decision.

Just call us at (904) 429-4588.

Calculating Employee Costs

If you want a quick estimate to determine employee cost, the general rule of thumb would be to multiply the basic wage by 1.25 to 1.40.

25% to 40% additional cost is typically used to cover other employee costs such as payroll taxes, benefits, and various overhead and administrative costs associated with the position (e.g., recruiting, accounting, technology, and travel).

Employee Cost Calculation Illustration

Let’s consider you want to hire an administrative assistant. In 2019, the national average for an administrative assistant salary is $44,950.

At 25%, the total employee cost goes to $56,187. At 40%, it would be $62,930.

If you’ve budgeted up to $63,000 for this new hire, you’d be in good shape.

However, if you budgeted $55,000 or less, you’d probably want to look for alternatives to hiring a full-time staff member.

What’s Typically Included with Employee Costs?

The largest portion of employee cost is generally the wage. In addition to wages, businesses will incur other costs.

Mandatory Employee Costs

These are costs mandated by the federal and state government. They include:

  • FICA (Social Security and Medicare)
  • Federal unemployment tax (FUTA)
  • State unemployment tax
  • Worker’s compensation insurance

Other Employee Costs

The cost of hiring and onboarding an employee should be factored in the total cost. These may include:

  • Recruiting fees
  • Background and drug testing
  • Initial and ongoing training
  • Uniforms and protective gear if necessary

Overhead costs should also be factored into the overall employee cost. These may include:

  • Workspace: Computer, chair, desk, phone, etc.
  • Office supplies: pens, paper, etc.
  • Payroll process

You should also keep in mind your employee benefits. These may include:

  • Health insurance
  • Paid time off (sick, holiday, and vacation)
  • Retirement savings

Depending on the employee position, costs may include:

  • Liability coverage
  • Bond
  • Travel to meetings, errands, conferences, etc.
  • Professional membership dues
  • Professional training and certifications

Alternative Ways to Avoid Employee Costs

If the actual employee cost exceeds your budget, you might want to explore other ways to get tasks done in your business.

You could use Independent Contractors to avoid costs associated with payroll taxes, unemployment insurance, worker’s compensation and disability, 401(k), sick days, etc. However, the IRS is strict on the definition of Independent Contractors. Generally, if the business controls how and when work is to be done by the individual, they cannot be considered an Independent Contractor.

Another alternative is to consider using a virtual assistant firm for your tasks. Generally, VA firms like Business Solutions Unlimited can handle tasks ranging from administrative to bookkeeping to marketing.

The VA firm is responsible for all of the employee costs.

If you’d like to explore the benefits of using a VA firm, give us a call at (904) 429-4588 and let’s see how we can help your business.

Employee Cost Frequently Asked Questions (FAQ)

Below are FAQs about the financial costs of employees.

What is employee cost?

The true employee cost is the amount a business pays for wages and total hours worked, benefits, taxes, and overhead necessary to employ an individual. Additionally, employee costs may include recruiting fees, hiring and onboarding costs, plus administrative costs such as business travel, technology systems, and professional organization membership dues.

How do you calculate employee cost?

The general rule of thumb in calculating employee cost would be multiplying their base salary by 1.25 to 1.40. This will help to determine an employee cost estimate you can use for budgeting purposes.

How do you avoid employee costs?

Businesses can decrease employee costs in various ways. For example, by hiring Independent Contractors, businesses may avoid costs associated with payroll taxes, unemployment insurance, worker’s compensation and disability, 401(k), sick days, etc. Another way to avoid employee costs would be by hiring the services of a virtual assistant firm, who would be responsible for all employee costs.