Unexpectedly Intriguing!
11 February 2008

Workers 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:

Employee Compensation Data
Input Data Values
Your Base Hourly Pay
Alternatively, enter your annual pay and divide by 2080 (i.e. "30000/2080")
How Often Are You Paid?
Select "Weekly", "Biweekly/Bimonthly" or "Monthly"
How Are You Paid?
Select "Check" or "Direct Deposit"
Employee Paid Time Off Data
Number of Paid Holidays per Year
Number of Paid Vacation Days per Year
Number of Sick Leave Days or Other Paid Days Off per Year
Defined Contribution Retirement Savings Plan Data
Percentage of Income You Contribute to a 401(k) or 403(b) Type Plan
If lower, enter the maximum percentage of income eligible for employer matching.
How Much of Your Eligible Contribution Does Your Employer Match?
Enter Your Employer's 401(k) or 403(b) Plan Matching Percentage.
Health Insurance and Benefit Data
What Type of Health Insurance Do You Have Through Your Employer?
Select "Not Applicable" If Your Health Coverage Is Not Provided by Your Employer.
If You Have Selected a Health Insurance Type, Select Type of Coverage
Select "Individual" or "Family".
Your Annual Contribution to a Health Flexible Spending Account
Your Health FSA contribution affects your employer's portion of Social Security and Medicare taxes.
State and Employer Data
Select the State in Which You Work
Select "United States" for average national data to be used in the calculations.
How Many Employees Work for Your Employer?
Alternatively, enter the number of employees who work at your facility.

Your Pay and Personal Benefits
Calculated Results Cost per Hour
The Portion of Your Pay for Actually Working [$USD/hour]
The Portion of Your Pay for Time Off Benefits [$USD/hour]
Employer's Matching Contribution to Your Retirement Plan [$USD/hour]
Employer's Portion of Your Health Insurance Plan Costs [$USD/hour]
Taxes Paid by Your Employer Because You're On the Payroll
Your Employer's Share of Social Security Taxes [$USD/hour]
Your Employer's Share of Medicare Taxes [$USD/hour]
Federal Unemployment Insurance Taxes [$USD/hour]
State Unemployment Insurance Taxes [$USD/hour]
State Taxes for Workers Compensation [$USD/hour]
Administrative Costs of Actually Paying You
Your Portion of Total Payroll Processing Costs [$USD/hour]
Employer's Cost to Transfer Your Pay to You [$USD/hour]
The Bottom Line
Your Employer's Basic Cost of Compensating You [$USD/hour]
The Percentage of Your "Visible" Pay That Represents

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!

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