How Much is Your Employee Costing You?

How much is your employee really costing you

Have you ever considered that employing workers cost more than just the salary you pay them? These are hidden costs: the taxes, the benefits, the equipment that your employee use, and these increases your actual employment costs.

So how do you calculate an employee’s true cost? Its very simple, and you can use our Employee Cost Calculator.

How to use our Employee Cost Calculator

1. Employee expenses

Fill out Annual Salary. If there are bonuses (i.e. meal allowance, travel allowance, etc.) put in the Bonus field. This can include 13-month bonuses or any additional pay outside the basic salary. Take note, this should be annual (monthly x 12).

Payroll and Benefits is for common employee benefits including worker’s compensation, health insurance, retirement benefits, etc., normalized at 12% (based on local government employees in the U.S., Employer Costs for Employee Compensation, Dec 11, 2012, U.S. Bureau of Labor Statistics) plus employee management and payroll expenses defaulted at 6% – for a total of 18%. You can change this number depending on your company’s policy. If you are not sure, just leave it on its default setting which is good for most companies.

After filling out these, you will have a Total Base Cost.

Fill out Recruitment Cost if there is any. Recruiter placement fees are typically at 20%. If none, just leave these fields blank.

Fill out Equipment Cost. The default $1500 for Total Allowance for Equipment is based on a typical 2012 office setup: a workstation plus accessories ($700), office desk ($300), office chair ($100), plus software licenses estimated at $400 annually.

Fill out the Annual Office Cost, Annual Electricity Cost plus expenses for the office supplies and office equipment (fax, telephone, printer, etc.). For example, if an employee occupies 10 square feet of the total office space located in San Francisco, his annual office cost for 10 sq.ft. is $2640 since the office space rate is at $22 per sq. ft. Take note, telecommuting companies like us at have lower employee burden cost due to the absence of a physical office and not having to pay for a monthly office space rent.

After filling out these, you will have a Total Employee Expense per year.

Total employee salary + expense shouldered by the company

2. Utilization & Hourly Rate

You need to define the total number of hours the employee is potentially available for work for the Utilization and Hourly Rate.

If a typical work week has 40 hours divided by 5 days, or 8 hours a day, 5 days a week work schedule, this will have a total of 2080 hours of work an employee can make.

Subtracting the paid days off, supposing its 10 vacation days (80 hours), 6 holidays (48 hours), 6 sick leave days (48 hours), and 3 days for training and seminars, plus other paid days off (24 hours) for a total of 200 hours from 2080 hours and we get 1880 hours of Actual Work Hours.

Now, dividing the total employee expense with the actual work hours, you will get you the Effective Hourly Rate of an employee.

Effective hourly rate of your employee

So, for example…

John has a basic annual salary of $65,000 and a bonus amounting to $2000 per year. He was hired from a professional staffing firm that charges 20% placement fee for 2.5 years contractual work. $1500 was spent to setup his graphic design equipment occupying a 10 sq.ft workroom at $22 per sq. ft.

John’s work schedule is 8 hours a day, 5 days a week, and includes 25 paid vacation and sick leaves.

Using our Employee Cost Calculator, we see John’s real cost is $47.32 per hour, that is 36% more than his per hour salary of $34.57. In order to maximize the cost of employing John, we need to properly allocate his time to the most important tasks.

If you need more help, don’t hesitate to contact us, or you can leave a comment in the section below.


About the Author

Cloyd Waldo works at, a global employment website, and Time Doctor, a productivity monitoring software designed to help reduce wasted time at work.

He has been telecommuting for work since 2008 and just loves mocha frappuccino.

Find me on Google+


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