I'm trying to get my ducks in a row to apply for a business license (business plan). Can anyone give me a rough breakdown of costs pertaining to an employee - federal taxes, workman's comp, etc? I know this can all vary from state to state, but I need a base line for my thought process.
From contributor A:
It depends on how much product they ruin in the shop and how much damage they do on site to the client's house and property. What you pay them is inconsequential when compared to this and how much the government and insurance companies charge for the pleasure of owning your own business. Go it solo as long as humanly possible, enlist friends, wife's family, the dog, anybody to help out when absolutely necessary until established, and talk to an accountant. They can give a better approximation as well as your insurance carrier, and of course the sales tax people.
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.
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.
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.
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).