When you hire an employee, there’s salary or hourly wages to consider, but that’s just the starting point for the true cost of a new hire. How do health insurance, payroll taxes, workers compensation insurance and more factor into the big picture, not to mention various hidden costs like work space and training?
Using an independent contractor to do certain jobs or handle specific projects is one way of getting around these extra expenses. To cut back on health care costs, employers can also consider offering voluntary benefits or Health Savings Accounts rather than a full plan.
Just keep in mind that the more you cut back on benefits and hours, the more likely your employees may be to jump ship. Employee retention is more important than ever these days with so many small businesses competing for talented workers. Once you’ve invested in the up-front costs necessary to hire a new employee, switch your focus to what it takes to keep them on board.
Here are 5 hidden employee costs to consider:
Taxes – Payroll, Social Security, Medicare and the Federal Unemployment Tax Act (FUTA) all must be paid on each employee. Add 6.2 percent for Social Security, 1.45 percent for Medicare and 6 percent for FUTA, although there are credits available for unemployment tax. Payroll taxes incorporate all of these and are best handled by a qualified accountant.
Insurance – Health insurance is the largest component of insurance costs, averaging 11.6 percent of total compensatio
n, according to the Bureau of Labor Statistics. Costs will vary depending on the size of the company, but the Affordable Care Act mandates that companies with more than 50 full-time employees offer a company health plan or pay a tax penalty. Federal and state unemployment and workers’ compensation insurance are other costs to consider. These come in at 0.1, 0.4 and 1.3 percent, respectively.
Paid Leave – Paid leave costs include vacation, holiday, sick leave and personal leave. The estimated cost for this is 7 percent, with vacation contributing the most at 3.4 percent.
Retirement & Savings – These benefits amount to 11.4 percent of total compensation. Costs can be affected by the percentage of employees participating in employer-sponsored plans.
Bonuses & Other Perks – Not all companies offer performance-based or annual bonuses or perks like free lunch, bottled water, health club memberships, etc. While these can go a long way toward retaining employees, they are still an extra expense.
MidSouth Bank offers many services, from checking and savings accounts to direct deposit and business loans, to help grow your small business. Visit https://www.midsouthbank.com/business to learn more.