Business growth often requires bringing on new employees, and the cost of hiring is an integral part of doing business. However, when planning your budget for a new job, are you factoring in all the associated expenses that come with onboarding that employee? It’s important to account for the full scope of costs beyond just salary.
Wages
It is easy to budget for salaried employees as compared to hourly employees. If an employee has overtime built into their job responsibilities, it’s important to ensure that you are accounting for any potential overtime hours since most states require that overtime wages are paid at one and a half times the hourly rate.
Payroll Taxes, Unemployment and Other Assessments
While Medicare has stayed consistent over the years, the wage limit subject to Social Security typically changes annually. Similarly, state unemployment wage limits and the annual thresholds for wages subject to assessments tend to rise each year.
It’s also crucial to consider any local taxes or assessments that may apply, depending on where the employee lives or works. These taxes and assessments are an unavoidable aspect of hiring new employees. In some instances, they are deducted from employee paychecks, but there is often an employer portion, or the full cost may be assumed by the employer.
Workers’ Compensation Insurance
Hiring new employees increases the total annual payroll, which directly impacts the workers’ compensation insurance assessment. The total payroll is a key factor in determining the workers’ compensation rate. Depending on the industry and the specific roles of the employees, the assessed rate can vary significantly, with some categories having higher rates than others.
Fringe Benefits
Fringe benefits look different for every employer. The employer portion of costs for these, in part or full, is factored into the total cost for an employee. These are not included as part of every employee’s compensation package, but they are key in attracting and retaining staff. Examples of fringe benefits include:
- Health insurance
- Dental insurance
- Vision, pet, life insurance
- Health savings or flexible savings accounts
- Retirement plans,
- Gym membership or other wellness perks
- Commuting benefits
- Phone
Time Off
In some cases, the ability to take paid leave is more valuable to employees than other benefits. Mental health days are becoming increasingly common among the American workforce, especially as employees adjust to return-to-office (RTO) policies. Paid time off can take various forms, such as sick leave, mental health leave, parental leave, holidays, or vacation days. Taking breaks is essential for everyone, helping to maintain overall well-being and productivity.
Equipment
If an employee has an office job, they will need a desk with computer equipment. Sometimes equipment can be repurposed, but depending on the position, this equipment might be replaced regularly. Budgeting equipment replacement should be part of a business’s normal business practices.
Software and Applications
This is an area that can easily be overlooked. What licenses need to be assigned to this employee? Are they remote and need a Zoom or Webex account? Microsoft 365 has been replacing desktop versions of the Microsoft Office Suite. Industry-specific software, like those for auditors, can be pricey. These tools allow employees to perform their work quickly and efficiently.
Training/ Professional Development
These expenses can include both initial upfront costs and ongoing recurring costs. Travel expenses may also be involved, particularly in industries where specialized training is only available in specific locations. These costs should be viewed as part of a long-term investment in your workforce. By covering them, you’re not only showing your employees that you’re committed to enhancing their skills and value, but you’re also signaling to your customers or clients that you prioritize delivering the highest quality services or products. This investment in your team reflects a commitment to excellence across the board.
Travel
Travel is essential for sales staff to perform their job effectively, as it allows them to meet clients in person, build relationships, and close deals. Additionally, attending trade shows, conferences, and client meetings helps sales staff stay competitive and informed about market trends.
For remote employees, occasional travel to the company’s headquarters is also important. It fosters a sense of belonging and helps maintain strong communication with their teams and leadership. It also provides opportunities for training, networking with colleagues, and staying connected with the company culture.
Licenses and Memberships
Many employers cover the cost of professional licenses and memberships. These may be annual or biannual. Covering these costs is necessary for attracting new employees but also for retaining them. Efficiency and productivity increase when an employee has access to the resources needed for their specific position.
Other
It is easy to get into the weeds when pricing out the cost of a new employee. Items like swag for new hires can be low-cost when simple but clothing, especially those that are customized, can add up quickly.
What is harder to track is the time spent through other resources such as time. Getting an employee up-to-speed may be quick for some positions and a lengthy process for others. This depends on the availability of staff to train and be available for questions.
Hiring a new employee can feel overwhelming when considering all the associated costs. However, rather than feeling discouraged, it’s crucial to approach the process strategically by carefully planning the timing of new hires. Utilizing annual budgets can be a helpful tool for anticipating and managing these expenses. Additionally, cash flow forecasting enables you to determine the most financially viable time to bring a new employee on board.
Employees are vital to the success and growth of any organization. While it may be tempting to focus solely on the financial impact, it’s essential to remember the invaluable contributions they make to your team. Their skills, expertise, and dedication drive the company forward, making them far more than just a line item in the budget.
