How Much Does an Employee Cost Per Hour? A Comprehensive Guide for You
Employers need to comprehend the expenses incurred by their employees. It is critical to be aware of employee costs to comprehend the cash flow or price of products and services and to inform future employment decisions. Let’s help you find out: How much does an employee cost per hour? Today, we’ll explore the cost as well as the factors, such as employee benefits, that are included in the total cost of an employee.
How Much Does an Employee Cost Per Hour?
The cost of each employee is different, determined by their contract and position. In addition to compensation and remuneration, business owners must consider other factors when calculating an employee’s hourly cost. In addition to commission, taxes, benefits, and insurance all contribute to an employee’s total cost.
Determining employee cost entails calculating the aggregate of all pertinent expenses associated with a specific employee throughout the year and then dividing the result by the employee’s monthly, annual, or hourly rate. The majority of the expenses are comprised of gross compensation and employer payroll contributions.
Employee expenses may differ significantly based on various factors. The incorporation of payroll taxes, employee benefits, and additional expenditures into the labor burden of businesses complicates independent calculations.
On average, an employee incurs expenses ranging from 1.25 to 1.4 times the base salary. The entire cost per employee can be calculated by multiplying the base salary by 1.25 or 1.4. This formula computes the minimum and utmost costs for each employee.
The cost of hiring a new employee at a salary of $52,000 per year is estimated to be between $65,000 and $72,800. Based on the provided formula, the hourly wage for an employee is estimated to be between $25 and $28.
The methodology offers organizations an initial estimation of their actual employee costs. Employers can utilize this estimation to forecast project expenses and business profitability.
The formula for employee cost per hour
Annual Cost = wage × hours worked + taxes + benefits + insurance + supplies + overtime
Overtime = wage × 1.5 × overtime hours
As of December 2023, the average hourly wage for private industry employees was $43.11. Wages and salaries comprised 70.4% of employers’ total costs, while benefit expenses constituted the remaining 29.6% or $12.77 per hour worked.
Factors Impacting the Employee’s Cost Per Hour
– Location
Full-time employees are entitled to mandatory benefits in the communities in which they reside and are safeguarded by minimum wage regulations.
– Industry
Different industries incur unique costs for their employees. In the manufacturing sector, for instance, the heightened risk of injury frequently necessitates that employers furnish their staff with better insurance coverage. On the contrary, administrative firms are obligated to account for the cost associated with furnishing office supplies (e.g., printers, ink, and stationery) to every employee.
– Market
The condition of the labor market may impact employee compensation. Employing exceptional candidates, for instance, is less expensive in a labor market where the number of qualified individuals exceeds the number of available job opportunities. Conversely, in the event of a talent shortage, labor expenses would escalate as employers are compelled to offer more appealing remuneration packages to attract and retain exceptional talent.
– Turnover rate
In the case of high turnover, organizations need to focus on increasing recruitment and retention costs. Promoting talent development and fostering work-life balance have the potential to increase employee retention rates.
– Company size
Although a larger organization will incur greater total administrative expenses, the average cost per employee will be lower. On the contrary, a smaller organization will incur higher costs per employee despite having lower administrative expenses. This discrepancy arises due to the fact that larger organizations procure equipment, software, and supplies in larger quantities, often at reduced prices per unit, through wholesale purchasing.
– Headcount
Organizations must provide more competitive compensation packages to attract senior and high-level profiles compared to those targeting younger employees with less experience.
How Much Do Employee Benefits Cost?
In today’s labor market, employee benefits are crucial for attracting and retaining talent. The Bureau of Labor Statistics (BLS) communicates the expenses associated with different categories of benefits in the private and public sectors.
So, how much do employee benefits cost?
The average hourly cost to provide employee benefits to a civilian worker is $13.39. The most recent BLS estimates place the monthly cost of employee benefits at approximately $2.2k for private workers.
The cost can be attributed to:
– Insurance cost
– Legally required benefit costs
– Retirement cost
– Paid leaves cost
– Supplemental pay cost
– Transit benefits cost
The BLS serves as a foundational reference for ascertaining the per-employee cost of benefits; however, variations frequently arise among organizations due to the subsequent factors. These factors are:
Size: As mentioned earlier, employee costs are typically lower at larger organizations due to employers’ ability to negotiate more favorable rates through mass purchasing.
Benefit type: The employer’s premium increases proportionally with the number of benefits provided.
Inflation: Benefits providers commonly implement annual rate adjustments for employers in response to external factors, including healthcare costs and inflation.
Admin errors: The administration of employee benefits is a multifaceted process, and frequent errors that may lead to unforeseen expenses include neglecting to terminate an employee’s coverage or failing to meet an enrollment deadline.
Locale: Employee benefits in major metropolitan areas (e.g., New York and San Francisco) are typically $2 to $3 more expensive per hour worked than in other regions of the US.
Implementation fee: Certain benefit providers impose a one-time implementation fee for establishing an employer’s benefits and employee enrollment.
Conclusion
Calculating how much does an employee cost per hour is an essential component of the business. Knowing the cost per employee allows for accurate budgeting of staff expenses. However, calculating employee costs can be challenging, particularly when conducting business across multiple countries. You can avoid the hassle of finances by getting help from our Finance and Accounting experts. Reach out to us to explore how our expert services can help you streamline processes across your finance and accounting value chain.