You’ve finally made the decision to hire an employee. Maybe it’s your first, or your 100th. Regardless, adding employees to your business can be both good and not-quite-bad, it just depends on your perspective.
If the new employee is coming into your department and now you might—finally!—meet your goals, then that’s great. If you’re looking at the bottom line, you’re more interested in knowing that the money is there to cover all aspects of their employment.
Small business owners, especially those about to hire their first employee, may be surprised to find out that employees cost 25-40 percent more than their hourly pay. You’ll need to plan for these extra costs so there isn’t a surprise come the end of the year. We’ve broken the costs down so you can more easily see which will, or won’t, apply to you and your business.
Equipment, Management Costs
Employees take up space in your office and that is a cost to the business, along with their work computer, desk phone, office supplies and cell phone, if the company is supplying it. There could be other costs such as uniforms and gear, depending on what type of business you have, and what the employee is hired to do.
There are also related costs, including the tech people who set the new equipment up, the human resources employee who will take care of all the onboarding, and the payroll clerk.
If you haven’t hired an employee before, you might be unaware that not only does an employee pay taxes, but so does the employer. Those taxes include state and federal Unemployment Insurance Tax, Social Security, Medicare, Workman’s Compensation Insurance, and any local taxes. These costs are estimated to be an additional 15 percent of the employee’s wages.
Paid Time Off
Paid time off is a perk that employees not only look for, but expect. This includes vacation, sick leave, personal time, paid holidays, and paid breaks, as required by local and federal laws. These costs vary depending on a variety of factors. Some employees are granted all of it, while others may not be offered vacation time.
Health insurance is another benefit that is very important to most employees. Demand for this has risen as individuals are required by the federal government to have health insurance coverage.
You will have to decide what portion of the plan premiums your business will cover, if any. Some businesses offer the insurance, but the employee pays all of the premium costs, while others may pay a portion or all of it.
You may also want to consider offering savings retirement plans for your employees. These plans typically allow employees to contribute a portion of their wages into a 401(k), or similar, account and the employer matches a portion of it. How much a business contributes can vary.
If you don’t want to pay the extra costs, there are a couple of options to consider. You could hire independent/freelance contractors or a consulting firm. Doing that means avoiding the hassle of direct hire and all the extra costs. You could hire them on and off throughout the year, when you are having your peak season, need help on a special project, or just need some help to catch up.
Those type of workers may charge more per hour than you normally pay for an hourly employee, but they also save the other costs and you may save money to put into other areas of your budget.