A new hire will cost more than their base salary — you’ll also have to factor in expenses for benefits, recruitment, and training.
The decision to bring on a new employee is not one that should be taken lightly, as each new team member affects the culture of your small business as well as your financials.
When thinking through a new employee’s compensation package, it’s important to remember that hiring someone will cost you more than their base salary, as compensation includes the cost of their benefits as well.
The national average of employee benefits cost
A great place to start is by reviewing the United States Bureau of Statistics to get an idea of what the true cost of employee benefits are across the U.S
When creating your benefits package and forecasting costs for your business, it’s helpful to use accurate benchmarking data to guide your decisions. A great place to start is by reviewing the United States Bureau of Statistics to get an idea of what the true cost of employee benefits are across the U.S.
For civilian workers, the average cost for employers paying for employee benefits equals $11.82 per hour, in addition to their average salary and wage which is $25.91 per hour. Taken together, the average total compensation is $37.73 per hour.
For state and government workers, the average cost for employers paying employee benefits equals $19.82 per hour, in addition to their average salary and wage which was $32.62 per hour. Taken together, the average total compensation is $52.45 per hour.
For private industry workers, the average cost for employers paying employee benefits equals $10.53 per hour, in addition to their average salary and wage which is $24.82 per hour. Taken together, the average total compensation is $35.34 per hour.
For a more detailed breakdown on national averages based on percentiles, you can view the report on “Employer Costs of Employee Compensation” and see how your plan compares.
Fixed cost projections
When planning and projecting your budget for new hires each year, it’s important to factor in all the personnel-related costs in addition to salaries. This includes costs associated with recruitment, training, and benefits.
For example, recruitment can cost a business up to $4,129 per hire. In addition to this, Training Magazine reports that in 2019, companies spent on average $1,286 dollars per employee to train them on their roles.
When you consider that most employees need up to 6 months to be fully onboarded into their roles, it can take some time to see the returns on your investment.
Finally, when you add the cost of health benefits and office perks like free lunch or coffee, someone’s actual salary can cost an employer 1.25 to 1.4 times the actual cost of the new hire’s base salary, according to Investopedia. So, if you’re paying your employee $50,000 per year, this may actually cost you $62,500-$70,000 with the additional costs of benefits.
Someone’s actual salary can cost an employer 1.25 to 1.4 times the actual cost of the new hire’s base salary.
For this reason, it’s important to know exactly how much your fixed benefits program and recruitment costs would be on top of your employee’s salary before bringing anyone onto your payroll.
Common blind spots for business owners
When it comes to forecasting the cost of your employee benefits, there are some common blindspots we suggest small business owners look out for.
Forgetting administrative costs
The time and labor companies devote to administering healthcare benefits to employees can be extremely time consuming and manual. This is where HR softwares like Zenefits can remove the time burden and paper-driven processes from HR professionals and free up their time to focus on more meaningful areas of work.
Mistakes in paperwork
Missing enrolling dates, not having all proper documentation on file, charging employees the wrong amount for their coverage, and failure to terminate coverage within the proper time frame are all common mistakes in paperwork that can have severe financial penalties and thus impact on your business.
Unexpected annual increases in health costs
According to Investopedia, healthcare costs are projected to continue rising across the U.S. Beyond government policy, some drivers of these cost increases include:
- Population growth
- Population aging
- Disease prevalence or incidence
- Medical service utilization
- Service price and intensity
For example, depending on whether or not COVID-19 continues into 2021, there could be unexpected premium rate increases for 2021.
Fluctuating benefits status
While an employee may start off their career needing an individual/single health benefits plan, this situation could change as they potentially get married or have kids. This change will increase the cost of their benefits package for the employer.
The costs of benefits can be challenging for your budget; however, having employees who are not happy or healthy can be even more detrimental. The people you hire will make the difference between whether you fail or succeed as a company, so if managed well, your investment will pay off.