Wednesday, March 2, 2016

Employee Benefits - The Real Cost

Many times, employees do not understand their total cost to a company.  In addition to normal base salary or hourly rates, plus any other commission, bonuses or incentives, various benefits add significant cost to hiring an employee.  Right off the bat, in the United States, employers get hit with 7.65% of total salary for Social Security and Medicare before any other benefits are added.  Paid sick time, vacation and holidays are not free either, since the employee is actually being paid for not working those days.   Many companies pay for some portion of medical and dental benefits and sometimes match 401K contributions and other benefits.  

So, when we speak of the full load, we must add all these other costs into the configuration.  Depending on family size, benefits and employee contributions, the full load can be 20% - 40% of the employee's salary to form the total cost of compensation and benefits.   This is the reason why adding additional employees to any company should be a serious discussion.  In our company, this CEO Blogger approves all new hire and replacement hire decisions, since in a service company like ours, people make up 70% of our expense line. 

Most important, it is easier to add benefits as a business grows than to take them away in bad times.  However, it might be best when times are good not to add new benefits, paid by the company, at all.  Instead, companies are now adding what are called Voluntary Benefits, which could include all sorts of goods and services convenience packaged that can be offered employees at no risk, or cost to the company.   This is a better way to go than adding costly benefits, paid for by the company, that in bad times are often eliminated. 

Tuesday, March 1, 2016

Raising The Federal Minimum Wage - A Bad Idea

We often hear calls from liberal politicians and unions for raising the $7.25 federal minimum wage.  It would be a very bad idea.  First of all, a very small percentage of Americans are actually paid the federal minimum wage because while employers in states and cities cannot not pay less than the federal minimum wage, these localities often have higher minimum wages in place.   Further, many lower skilled, under-educated employees are paid more than minimum wage because of market forces that require higher wages  to attract workers.  So, even fast food companies and retailers that typically pay lower wages are not paying minimum wage to most of their employees.

Minimum wage, which should be defined by states and even locally based on cost of the living for the area, is usually paid to Americans in entry level jobs and often to young people in part time work.   Those who call for a federal minimum wage of $15 an hour, if ever enacted, would be a job killer.  Those in manufacturing jobs in the US are competing with workers in foreign countries that are often paid $5 a hour fully loaded.   Moving the minimum wage up to $15, which would presumably move wages up across the board, would just result in even more jobs being pushed overseas as has been happening for 20 years as a result of union demands for higher and higher compensation and benefits in the US.  About 3 million manufacturing jobs in the US are now overseas because unions pushed and pushed for higher wages and benefits to the point that they made no sense. 

In addition, at $15 a hour companies that cannot off shore jobs, would just bring in more automation.  We are seeing it now as stores like Home Depot and Lowe's now have self check out stands with one employee manning 4 stations.   It would be very easy to turn fast food registers into self service, with the customer placing the order and one employee taking the money for four registers.   If the minimum wage is raised too high, companies will find ways to eliminate labor cost.   So, those that keep pushing for a higher federal minimum wage will do a disservice to the very people they are trying to help.

Higher labor cost would just be passed on to the customer.  A higher federal minimum wage would mean higher prices as Wal Mart and or for goods and services in our country.  It would result in an even lower standard of living for the working poor.  A better idea is improving our education system so that those with little or no job skills, or education gain both so that they will be paid a whole lot more than the minimum wage.