The True Cost of Employees

Dear Anita,

My wife and I have a mom-and-pop shop with a dozen employees. One of my workers acts like I’m being a cheapskate with his salary, hinting he deserves a big year-end bonus. I try to pay a competitive wage, but I have to make a profit, too. How can I communicate the economics of a small business?

Dear, Pops,

Total_Compensation_Statement

Payscale’s Total Compensation Statement shows the employer’s contribution in addition to the wages.

Employees often think that their salary is the only cost to the employer for their services. They often do not realize that taxes, workers’ compensation insurance and even the cost of “Mom” completing the paperwork can cost your business another 30 percent in payroll costs.

I assume that you have done salary comparisons for the job title in your geographic region to ensure that you are, indeed, paying a living wage that rivals your local competitors. If you are, a little education may illuminate the realities of employer-paid contributions to all of your employees.

“Total Compensation Statements” can include line items such as:

  • Base pay
  • Bonuses
  • Vacation/PTO/sick days and other paid leave
  • Payroll taxes (Social Security match, Medicare, state unemployment insurance tax)
  • Employer-paid portions of insurance plan premiums (health, dental, vision, life, disability
  • Employer contributions to employee’s retirement plan, such as a 401(k) or pension
  • Stock options or profit sharing
  • Annual usage value of a company car
  • Value of any other fringe benefits offered, such as:
    • Fitness club membership
    • Cell phone service
    • On-site child care
    • Free or discounted public transportation or parking
    • Tuition assistance/professional development
    • Company discounts

Non-quantifiable perks may include flex time or on-site facilities available for employee use. For new hires, include one-time benefits, such as relocation expenses or signing bonuses. There are handy Total Compensation Calculators online.

While a Total Compensation Statement can illustrate the true cost employers pay for an employee, it has the potential to backfire as a teaching tool. Workers may feel you are fudging the numbers if you “double-count” vacation or PTO and they don’t really receive additional pay. Also, if an employee does not use a perk, such as child care, then the value is moot for them. A pitfall with salaried employees may occur if they feel any overtime is not valued since it won’t be reflected in the compensation.

Employees who may be shocked to learn that their $40K annual salary is actually costing their bosses around $52,000 may be a little more grateful, or at least have a greater understanding of the realities their employers face.

Readers: Have Total Compensation Reports opened your eyes to the true costs your employer faces?

Do you have a job-related question? Ask Anita.

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Disclaimer

Anita Clew's blog posts are intended for general guidance and should never be taken as legal advice. In all instances where harassment, inequity, or unfair treatment is believed to be present, please consult your HR Department or legal representation.
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