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Hiring Employees Is More Than Just Paying Salaries

Guest post by: Joseph Lizio

Article Overview: Hiring employees is more than just paying a wage as it also involves additional expenses Federal and State mandated taxes – all of which really add up. In fact, these additional fees can related to more than 30% above the employee’s base wage rate.

Hiring Employees Is More Than Just Paying Salaries

One of the principal measures that will continue to stagnate our current economic troubles and slow any recovery is our high level of unemployment. High unemployment results in low levels of spending. People out of work just don't have the money to cover their necessary expanses as well as all their personal desires. This means that consumers become more selective about when and where they spend. Good news for businesses that provide needed products and services and not so good news for businesses that only provide so called luxury items.

If high unemployment is a major cause of our continued economic problems then a simple solution is to entice employers to hire more workers.

Simple enough but hiring new employees can be a two edge sword. If consumer spending is already down it means that business revenue is also down. With decreased business revenue most entrepreneurs find it hard to justify adding more costs to their payroll expenses.

Further, hiring a new employee consists of more than just paying a salary or wage.

Most employers are required to pay one-half of their employee's Social Security Taxes as well as one-half of their FICA (Medicare) taxes. This relates to a cost to the employer of an additional 7.65% above and beyond the employee's salary. Not to mention the cost of federally mandated unemployment (usually around 6.2% as well as state unemployment taxes - usually around 4%) as well as training, infrastructure (desks, computers, etc.) and other employee management costs.

In fact, according to CNN Money - an average employee can cost as much as 25% to 30% above their base rate of pay.

Example, the average wage in this country is approximately $63,000. For a new employee earning the country's average this could relate to additional payroll expenses of $15,750 per new worker (above the salary).

Now, what if your small business was not looking to hire the average worker and was only seeking to pay the minimum wage required?

Even if your business is seeking to hire a new full-time employee at the minimum wage of $7.25 or $15,080 per year, this employee would cost $3,770 in added payroll taxes and expenses per year.

In this light, the costs of hiring new employees just might not seem worth it. But, employees also offer other benefits. The goal of any business looking to add workers is that each worker should be able to bring enough benefit to the business to cover their own expense as well as provide a bit more to the company (in the form of profit). For example, a new minimum wage employee may cost the business some $19,000 per year but, if that employee can either save the company a similar amount or bring in new business that covers more than their costs, then it would be a viable and profitable objective in hiring that employee. This is based on the standard financial principals of Net Present Value (NPV).

Thus, when thinking about your business, its future growth potential and its hiring practices, the business owner should always consider more than just the salary or wage of new employees. Business owners should treat employees like they would treat any other investment project. And that is to determine what added benefit the project (employee in this case) will bring to the table then subtract out the cost (all the costs). If the net result is positive, then the project should be undertaken (or the employee should be hired).

It seems that, especially in hard times, business owners fighting to survive tend to get caught up in the cost of doing business. And, employees usually represent the business's largest area of costs. But, by taking the fear and emotion out and looking at both the benefits of employees as well as their costs can make these types of decisions easier and potentially more profitable to all involved.

Or, think about this way. Your business hires a new employee who takes their wages and spends them in the local economy. The other businesses, which benefit from your employee's spending, see an increase in revenue and decide to hire their own employees; who in turn take their wages and spend them in local, community businesses (like yours). As this go on, the local economy improves and, as the saying goes, a rising tide will lift all boats.

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Article Tags: business, hiring, payroll expanse, salary, taxes, unemployment



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