by ctystr77
November 9, 2010 04:58
The next time you get ready to hire someone – make sure you KNOW THE NUMBERS
Begin by deciding what you will pay for the new employee as base compensation. Next, add the additional expenses that will become part of the labor burden for the new help.
| Base Compensation (Annual) |
$ |
| 7.65% of Base for FICA* |
$ |
| 1% of Base for Unemployment** |
$ |
| 10% of Base for Workers Compensation** |
$ |
| 2% of Base for each week of vacation you plan to pay |
$ |
2% of Base if you pay Major Holidays (6 Major)
|
$ |
.4% of Base for each additional day (Sick, Personal, Bereavement etc) you plan to pay
|
$ |
| ANNUAL Total for Health Care / Life Insurance if you pay for the Employee |
$ |
| TOTAL |
|
*Check current IRS code for salaries approaching $100,000 to obtain the limit of SS and Medicare
**If you know your rates, adjust the percentage accordingly.
By completing this work sheet, you will discover that a $25,000 employee can easily cost you $35,000 a year if you provide a benefit package (Spending $300 per month on Health Benefits). To be safe when determining what an employee will cost you or your company, always add at least 40% to his base wage.
If you’re filling a position to increase your business (as opposed to replacing an employee that has been terminate or decided to move on), you will need to know the amount of additional revenue that is needed to break even. To do this, you will need to know your Gross Profit Margin (GPM). This can be found on a good Profit and Loss Statement. The formula you will use:
Labor Burden ÷ GPM = Breakeven Point
Based on the example above, if the total labor burden of $35,000 and the Gross Profit Margin for your company is 30%.
35,000 ÷ .30 = $116,666
You will need to increase revenue by $116,666 to break even for hiring this employee. Of course you will want to increase revenue by at least twice this amount for the sake of making a profit of at least his total labor burden.
|
Helpful Tip: To quickly determine what an hour employee cost you on an annual basis,
simply double his hourly rate and add three zeros. For example, if he makes $17.50 per hour,
double this number to get 35 and put three zeroes behind it. He makes “about”
$35,000 annually if he works 40 hours a week. Of course, don’t forget the additional
labor burden as discussed above.
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