Entrepreneurs and small business owners often underestimate the true costs associated with being a boss. This is a key oversight in new business owners; below we address the hidden costs that must be factored in when building a team. Whether you are paying your employees hourly or salary, it is essential for the health of your organization that you understand the expenditures associated with your business, including employee costs.
Salary/Wages and Overtime
With partisan politics aside, salary and wages are on the rise, especially in some industries – namely healthcare and related fields. As more and more jobs have been added to the economy over the last couple of years and the demand for high-quality, experts has increased, wages have risen in most areas of the country. Some states are looking to increase the minimum wage exponentially, which drives the ancillary costs up as well. Prior to considering a new part-time or full-time employee, consult with your accountant.
Overhead Costs
The more employees you add, the more office and workspace you need, resulting in higher rents. It is advantageous to weigh your options before adding staff that will require you to expand your real estate costs. Perhaps an employee or independent contractor that works from their home might be a wiser financial decision. In addition, do not underestimate other costs including office supplies, technology, training, uniforms, and more. However, one of the biggest hidden costs is insurance – Workman’s Compensation, business insurance, bonding and licensing all come with a price.
Health Insurance
As a small business owner, you can get tax credits for providing a health insurance plan to your employees. In fact, the tax credit could be as much as 50% of the premiums you pay on behalf of your employees. However, remember, you are still going to be writing a check for the health insurance plans for your team, well in advance of the tax credits you will receive. It is important to check with an accountant for a full evaluation of your situation to determine if it is wise to offer health insurance plans or not. There are certain restrictions and qualifications your business must meet. Your business cannot have more than 25 full-time employees and the average wage of employees cannot exceed $50,000 per year.
Payroll Taxes
Social Security, Medicare, Federal & State Unemployment Insurance Tax, Local Payroll taxes and Employment taxes add up. It is typically safe to estimate 15% of the employee’s wages as the taxes you will pay. It can become quite complicated depending on the number of employees in your office; consult with an accountant that specializes in small business accounting that offers payroll services. Instead of having the expenses associated with doing payroll in-house, you can elect to have a professional accountant handle it, saving you the expense of having payroll done in-house.
Paid Leave
When figuring how much your employees cost, do not leave out paid leave. For members of your team that are essential to operations, when they go on vacation, sick leave, or maternity leave – will you need to hire a temp? If so, consider that an additional cost in the computation. Paid leave is a great-added employment benefit that can help you recruit excellent members to your team, just be sure to calculate in all of the associated costs.
