How much does having you on the payroll really cost your employer?
You can thank or blame King Banaian for the brand new tool we're featuring today, in which we seek to answer that very question!
To answer the question, we're focusing on those things that represent the recurring cost of compensating you for your boss and those things that are required for all employers by law, such as all those taxes your employer has to pay just because you're on the payroll. Things like hiring you in the first place and training you to do your job aren't included, since these often reflect one-time only costs and can't really be counted at all as part of your compensation.
The tool will also not consider such factors as overtime pay and bonuses mainly for the sake of keeping things simple (it's complex enough already!) While these factors will influence things like how much your employer pays for its portion of Social Security and Medicare taxes, they don't influence things like your company's matching contribution to your 401(k) retirement plan or how much your health insurance would cost.
That said, our tool is designed to find out how much you actually cost your boss per hour, taking into account what benefits you may have and things like how big your company is and the state in which you work. Ideally, the tool will give you a good idea what your employer pays you beyond what you see on your paycheck:
Some Observations
The portion of your pay for actually working and the portion of your pay for time-off benefits will, when added together, equal the amount of your basic hourly pay.
For the lowest incomes, and particularly for small businesses, the administrative costs of actually processing the payroll and delivering your pay to you in the form of a check or by direct deposit to your bank can represent the largest component of expenses beyond your actual pay! We estimated these effective costs per hour for you based upon the prices listed by payroll processing firm Corporate Payroll Services, which we assume to be either competitive with or less than what your employer actually pays for these administrative expenses.
You may be absolutely amazed by the percentage of base pay represented by the non-visible portion of what your employer has to pay beyond your paycheck, especially if you earn the minimum wage in the U.S. and your employer provides health insurance for your family and you opt for the PPO option, which 60% of all employees covered by their employers do. We adjusted the average cost for each type of health insurance plan for each U.S. state based upon the relative percentage of health insurance costs in each state with respect to the U.S. national average using the data summarized by the Public Policy Institute of New York State.
We likewise used the average unemployment insurance tax rate per state and the average workers compensation tax rate per state as well in computing these figures. Workers compensation, in particular, can vary wildly based upon an individual's occupation in addition to varying by state. Meanwhile, the amount a company may pay in unemployment insurance taxes can vary based upon the age of the business, which we did not take into account. Here, new business typically pay higher rates. California provides a good example of this factor as it charges new employers a 3.4% tax rate before lowering it after three years. California's average unemployment insurance tax rate for employers is 0.91%.
Employers have an incentive to have their employees contribute to Health Care Flexible Spending Accounts, which they can use to reimburse their health expenses with pre-income tax dollars. Employers can reduce the amount of FICA taxes they pay in proportion to what their employee sets aside in this type of account.
Finally, the results our tool provides above only covers your contribution to your employer's cost of doing business! There's also the matter of what your boss pays for land, equipment, material, etc. in setting the threshold of what it takes for the business to actually be profitable!
Update 12 February 2008: Our thanks to a sharp-eyed reader who noticed that our calculation for the employer's cost of direct deposit was incorrect! It turned out that our code was simply missing a set of parentheses, which has now been fixed!
Labels: business, health care, paycheck, tool, wages, work
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
Thanks in advance!
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