True Costs of Hiring an Employee

If you are starting a new business and are considering the costs involved, then you might have already figured out that one of the biggest cost of running a company is employee’s salaries. But what you might not know is that the actual cost of every staff member is much more than the salary.

There are various other costs associated with employees, such as taxes, health care costs and paid leaves. These costs are fixed for every employee but there are some variable costs as well such as time spent on training a new recruit. The actual cost of an employee is usually 25-50% times more than that the salary.

One of the major factors that increase the costs of an employee is various federal taxes such as the federal unemployment insurance tax. Social security and health care schemes result in social security tax and Medicare taxes, which again increase the overall burden of employing a person as they require employers to contribute a significant amount.

In addition to federal taxes, various states schemes also burn a hole in the pocket of the employer. Many states have a separate unemployment tax, which may or may not be deductible from the federal tax.

It is not just the taxes that add to the costs of an employee. Various services and facilities have to be provided in the office for the employees. Toilets, coffee machines, daycare facilities, heating and cooling, and parking space are some of the common facilities that increase the costs of employing a person. And of course, rent is one of the biggest expenses that you’ll have to bear when you have employees in an office

The initial costs of a new recruit are quite high because time has to be given to them for learning the work. It takes at least a few months for the employee to start functioning at maximum productivity. You can suffer various losses such as a missed project because of the inexperience of new employees. Another danger is of losing the employee and bearing the additional costs of hiring a replacement. And then you’ll have to train the new employee.

Therefore, employing a new worker remains a crucial decision that should be taken after much deliberation. The government has not given enough incentives to positively influence the decision of hiring new employees. But by using new technologies like virtual networks, the internet, and video conferencing, you can reduce some of the costs associated with an employee.

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