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.