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Monday, July 3, 2006

Employee loaded costs



One of the things that always amazes me is how ill-informed employees are of their 'total cost to the company', often referred to as 'loaded costs'. Simply put, the pre-tax salary that is in your offer letter is only a part of what your employer pays for you. I find it pretty silly that an employee leaves one company for a 5% pay hike in his base salary without calcuating what other 'hidden' costs may not be paid by the new employer. To give you an idea, here is a sample break down of what constitues your 'loaded cost' to your employer, assuming your salary is $100,000 (easy number for computations). There are some approximations made, but for the most part, this will give you a good idea of the costs involved.

This also gives employers an idea of how much they are really spending per employee. Many senior employees who are involved in budgeting and planning are often clueless about their real costs and take only 'paper salary' as their total cost, which is way off the mark.

Assumptions:
  • # of employees = 40
  • 2 VPs, 4 Directors, 3 sales (typically this is more, but let us take this model to compute S&G costs)
Employee loaded costs:
  • Base - $100,000
  • Timeoff/leave - $5,555.56 (assuming 15 days PTO)
  • Company Mandatory contribution to benefits: $4,000
  • trainings costs per employee per yr: $4,000
  • HR Costs (including recruitment): $1,500
  • Employer taxes on behalf of employee: $6,813 (FUTA, FICA, Medicare etc.)
  • Office space and general expenses (rent apportioned, stationery, phone, employee travel ,etc.) - $13,020
  • Company Benefits contribution - $28,000 (insurance taxes, medicare, health premiums)
  • Payroll related expenses - $10,000
  • S&G per employee - $42,237.50 (cost of sales)
Summing all of the above, loaded cost = $215,126 (approx) for an employee who's pre-taxable income is $100,000.