Tuesday, August 10, 2010

How much does your employer pay you? How much does it cost to actually employ you? Two VERY different numbers!!

Why I'm Not Hiring : When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits
     This opinion piece appeared in the WSJ yesterday. While we can parse the obvious politics in the writing, I think it is instructive to look at the numbers he uses to calculate the cost of hiring an employee. These "costs" , I believe, are objective and the percentages (especially the taxes) cited are correct from what I know about them.
     He uses the salary of Sally, an employee of his firm.  Her stated yearly salary, or gross pay,  is $59,000.  He first deducts from her salary the following items BEFORE getting to her net pay, which is what is left over after ALL the deductions are made:
(1) Her portion of Healthcare/Dental  Insurance-  $2,376
(2) The State for Unemployment Insurance---$126
(3) Disability Insurance---$149
(5) State Income Tax (Texas does not have this)---$1,893
(6) Social Security- $3,661
(7) Federal Income Tax Withholding (to pay Fed Income tax at the end of the year)---$6,250

Total Deductions---$15,300 (some of that $6,250 in withholding may be refunded to her depending on her eventual Federal tax liability).
These are the costs to the employee, BUT the employer also incurs significant costs OVER AND ABOVE what they actually pay the employee in gross pay. Here are the costs he pays in addition to the salary of $59,000:
(1) The employers portion of Healtcare/Dental---$9,561 (Sally paid  $2,376 too)
(2) Other personal insurance, i.e. employer paid life insurance policy---$153
(3) Federal Unemployment Insurance---$56
(4) Federal Disability Insurance ---$149 (Sally paid this too)
(5) Workers Compensation Fund---$300
(6) State Unemployment Insurance---$505
(7) The Employers portion of Medicare---$856 (Sally paid this too)
(8) The Employers portion of Social Security---$3,661 (Sally paid this too)

Total Cost to Employer to for this salary, over and above $59,000, is ---$15,241.  It costs approx $74,000 to employ Sally for $59,000 per year!
(You will notice some of the amounts that the employer pay and the employee pay are identical, most significantly Social Security and Medicare.  The employer "matches" these amount on your behalf. )

     I believe this is information is important because most people are not aware of the total costs of hiring an employee. We tend to only acknowledge the wage we are paid.  There are many other direct and indirect costs of employing someone that are not even mentioned in the above calculation. As usual, there is more to the story...So, next time you clock into work, thank your owner or manager for your pay!!! Ok, maybe not..
View My Stats