Cost of an employee
From the original questioner:
I've been working by myself now for a couple of years as a sub. I think it's time to go it on my own, I just fear not being able to build/install and give estimates (sales). I'd just like a helper to speed things up and do the easy stuff while I'm gone. I do understand your misgivings as I have tried to work with friends and neighbors (paid under the table), and sheesh…
From contributor B:
As far as money costs, we figure 30 percent more than their base pay. Take into account social security, Medicaid, unemployment, worker's comp, paid holidays, vacation, etc.
Training and ruining material is another story. You have control of proper training and therefore, mistakes can be lowered. Do your best to look at a job and figure where mistakes might be made. Focus on those places. Give your employee an assignment. Do not be afraid to get them to describe exactly what needs to be done. Pay close attention to what they say, look for areas that lack clarity. Do not ask if they understand, because of course they will say yes. Use pen and paper as needed. Monitor their work as needed. As time goes on, good employees get better and those that do not must be let go. It is a long process, but must be gone through if you wish to sleep at night.
From contributor C:
For every dollar of labor we spend $3.90 in overhead.
From contributor D:
If I pay an employee about $15 an hour for 40 hours a week, I need to make about $1000 a week to cover all of that employee's costs.
With taxes, workers comp., liability ins., SS, Medicare, vacations, administration costs for that employee, mileage, office overhead to keep that employee working, unseen costly problems that come up…
So I figure I have to make $1000 for every employee a week to make it. Some weeks are better than others.
From contributor E:
A few years ago my accountant advised me that to break even I needed to charge 1.5 times the wage. In order to make any profit I need to charge at least 2 times the wage. That simple formula has proved about right on for my size shop.
From contributor F:
Good question. To the employee base pay you need to add in a fifteen minute coffee break twice a day, two weeks paid vacation, medical insurance costs and of course the normal SAIF and FICA stuff as well as an accounting service to keep it all straight. In round numbers I figure $25.00 per hour loaded shop cost. I have kept track of billable hours and non-billable hours and added that in as well (about 20% non-billable, and this includes time to clean the shop, tool servicing, unloading material and such) and after all that I still have to clean the toilet!
From contributor G:
Employees, while an investment in the beginning, should only cost you money during your initial training session. Afterward, employees should actually be making you money.
From contributor H:
I would like to make one recommendation to you, particularly if you are considering your first employee. As you know now, there are many more considerable expenses on top of the employee's gross pay.
Say, for instance, a $10/hr employee grosses $400/week. His check might only be about $330 when you take out taxes, but your total cost might be in the ballpark of $550/week.
My advice, and this is something I am going to do if business ever gets good enough to hire people back, is to have a separate payroll account. You write a check at the end of the week from your general account to cover the total cost of your payroll. That way when the end of the quarter comes around, the many thousands you'll owe will be there. No forgetting about it. You can also just transfer the difference between net pay and what you'll owe to a savings account if you don't want the expense of another checking account.
By doing this, you will never be tempted to use payroll tax money when things get tight. Believe me, those IRS people will file liens on you without a second thought.
From contributor I:
My employees (I have 40) cost me 1.69 times their hourly wage. This includes taxes, health insurance, paid holidays, paid vacation, paid sick leave, profit sharing 3 times yearly (when there is profit), formal training programs, safety program, plus we assess each hour for certain consumables which are hard to track otherwise. This is cost of labor. In order to make profit, the holy grail of business, we then charge for office and plant overhead and profit (sometimes referred to combined, as gross profit, arrived at by markup). I'm not sure how many of my local competitors actually know their costs, but I do know that most of them don't give many or any of the above benefits to their employees, so competing is an uphill battle sometimes.
This is a description of the cost of an employee, to be distinguished from the value of an employee. The value is all of the tangibles you have invested over the years plus the enormous intangibles of friendship, loyalty, community, shared experience, shared achievement, in a word - relationship. As with all other relationships, you get in proportion to what you contribute - in my experience the payback is far greater than the investment (partly because I'm not counting).
Would you like to add information to this article?
Interested in writing or submitting an article?
Have a question about this article?
Have you reviewed the related Knowledge Base areas below?