How Much Does an Employee Cost You?
By Barbara Weltman,
Mandatory added costs of an employee
Hiring an employee means considerable payroll tax costs, including:
You can learn more about these costs from the IRS and your state revenue department.
You also need to address insurance coverage for your employees. This includes:
Talk with your insurance agent to determine what coverage is needed.
While these mandatory added costs can mount up, there’s good news. The costs of payroll taxes and insurance are fully tax deductible.
Other costs of an employee
Think about employee benefits you may want or need to offer an employee. Under federal law, only large employers (those with 50 or more full-time and full-time equivalent employees) must offer health insurance or pay a penalty. However, there is a federal tax credit for small employers that choose to provide at least 50% of the cost of health coverage.
Offering retirement savings plans, such as 401(k) plans, to employees isn’t mandatory under federal law, but employers may choose to do so. The cost of employer contributions needs to be factored into the total wage package.
Federal law requires employers with at least 50 employees to offer unpaid family and medical leave. But a number of states have paid leave laws. Some put the cost on employees (through wage withholding), while others require employers to share in the cost. And the District of Columbia puts the entire burden on employers.
These are only some of the employee benefits you can offer. Learn more about tax deductibility as well as exemption from payroll taxes for various fringe benefits in IRS Publication 15-B.
In addition to fringe benefits, there is a slew of other employment-related costs that may be difficult to quantify. These include:
Add up the costs to see whether your business can afford to add an employee to your staff. If your business is growing and you need more help, you can’t afford to NOT hire more workers. But knowing the cost will help you budget accordingly.
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