Is the “True Cost” of an Employee Killing Your Organization?

  • by back2
  • January 18, 2020
  • Improve ROI
  • Comments: ( 0 )

Studying the “True” Cost of an Employee

Many managers and workers typically just think of employee salary when they think of the cost their employees lay on them. The truth of the matter is far different and organizations of all sizes can overcome this issue and make their organization more productive and profitable only if they GET SMART about the issue.

  1. Recruitment expenses

Finding a qualified person who aligns to your organizations culture and ethics is time-consuming and costly. You’ll either need to hire an in house recruiter to perform this task or outsource to a contingency or retained recruiter. In addition to the recruiting team, advertising for the position, paying for online tools and Applicant Tracking System (ATS), and time – all cost the company more than just salary.

In fact, SHRM stated that the Average Cost-per-Hire for Companies in 2016 was $4,129.

2. Payroll expenses

Employee cost breakdown

Employees typically have a base salary which you’ll pay them every month. This is even though some months will have less work than other months. Additionally, bonuses and overtime pay can even add more to the outflow.

3. Employment taxes

Taxes are as certain as death and when you carry employees, the company also has to pay federal and state taxes in addition to the amount described above. Social security, Unemployment tax, Medicare tax, workplace insurance, and any other tax demanded in your region, all come out of the organizations account.

4. Employee benefits

To attract and retain top talent – especially in a tight labor market – you’ll need to provide competitive benefits in addition to salary and bonuses. Benefits can include health, life insurance, disability insurance, tuition coverage, entertainment benefits, retirement benefits etc. all add to the total cost of an employee.

For instance, for according to People Keep, an employee with an salary of $50,000, just a couple of benefits the company might need to pay include $5000-$7000 for health coverage for single employees and $10,000-$15,000 for those who want family coverage. Dental, vision, and other benefits can raise the company’s employee cost even higher. Top talent will look hard at the benefits provided when deciding whether to join the organization or not.

5. Paid Time Off (PTO)

As part of the benefits package, employees are entitled to time off for sick days, annual leave, and maternity leave. These are additional expenses which will squeeze an organizations finances.

6. Office space & Equipment

When you maintain employees, you’ll need to provide physical space or let the employees work remotely. Physical space brings additional expense in the form of rent, maintenance, and other costs.

All office space requires furniture and equipment. Items such as computers, furniture, software, telephone, printers, internet, stationery all bring greater cost and also additional employees to handle the supply chain and maintenance.

The larger the workforce, the greater the requirement for more space and equipment.

7. Utilities

Additional expenses such as electricity, water, internet, food, cleaning, and security ‘can’t be quantified to a single employee but will count towards the total costs.

8. Training

Employees require training so they may be proficient in their roles. Training is either conducted by other employees or outsourced to others. In all these scenarios, training costs time and money to on-board a new employee and to continuously develop their knowledge and skills.

9. Employee theft and liability

Its easy to take this for granted but depending on the industry, this is a cost which ‘you’ll have to be prepared for. Employee theft can take many shapes including loss of inventory, loss of work time, loss of equipment.

Also, employers can be held liable for an accident arising out of the general course of employment. In some areas, its even possible for an employee to take legal action against the employer to recover damages for harm caused by the employer’s negligence.

Even if the employer wins a liability related lawsuit, the cost of liability insurance and legal defense are added to the true cost of an employee

The True Cost of an Employee

Taking into account the salary and taxes, experts contend that the true cost of maintaining an employee is at least 1.4 to 1.5 times the base salary and can even be significantly higher when liability risk is taken into account.

So for instance, someone earning a base salary of $30,000 will cost actually cost the company from $42,000 to $45,000.

Contact us if you’re looking to GET SMART and improve your way of operating. We help organizations of all sizes build their teams, gain new business, and imorove their ROI.

Ridgeback Business Solutions helps organizations do things they can’t normally do in the fields of finding great talent, project management, focused marketing, and consulting business leaders on how to improve the efficiency and profitability of their business.

To learn more about how Ridgeback can help you,

To learn how to Get SMART with your organization, contact us at:

Phone: (646) 883-2927
Email: [email protected]