Ever wonder how much the average employee “costs” their employer? Most estimates are in the two to three times annual salary range but employees, particularly new employees fresh from the interview and job offer process, rarely know how much this new employer is counting on performance.
Unless you’ve actually run a company and hired employees, it can be difficult to fathom how much an employee costs an employer. The costs can be significant and unless that employee is able to pull his or her weight by producing revenue or something of value, the employer won’t, and shouldn’t, hire him or her.
What does an employee “cost?”
There are a myriad of costs associated with hiring anyone these days. Some of these are one time costs and some are ongoing. Regardless, they have to be paid by someone. Among them are:
Advertising for the position, identifying candidates, reading resumes, making phone calls, transportation, interviewing, meals, hotel expenses, use of vehicles.
Straight salary, commissions, signing bonuses, payroll processing.
Paperwork to set up the employee, training expenses, background checks, drug screens.
Office space, cost of furnishings and furniture, cubicle costs along with repairs and maintenance.
Company car, computers, telephones, cell phones, copiers, printers, printer ink, and other equipment necessary to do the job. Be sure to add repairs and maintenance.
Retirement matching, costs of maintaining the retirement fund, life insurance, health insurance, disability insurance, dental plans, dependent care assistance, tuition reimbursement, vacation, sick pay, paid holidays, Holiday bonus (ham, turkey, etc), promotional gizmos and gadgets with the company’s logo, etc.
Federal, state, and local taxes, unemployment taxes, FICA (Social Security), Medicare, workman’s compensation all must be calculated, processed, and paid.
Bad Hire Costs
They happen. Unfortunately, studies indicate that a bad hire can cost the employer between two and three times the employee’s annual salary.
Firing or losing an employee can be as costly as hiring one. Litigation, attorney costs, funds spent to defend the company’s position.
Soft costs are very difficult to quantify. The opportunity cost of time spent managing employees is often overlooked and generally underestimated. A full time employee wants someone to design a career path, conduct regular, performance appraisals, and provide coaching and counseling sessions. Some experts estimate that as much as 20% of a manager’s time is spent in these areas.
Other soft costs could include mistakes made by employees that don’t warrant termination but must be paid nonetheless, performance reviews, meetings, and other difficult to quantify costs.
It’s a wonder that more employers don’t use temporary services and consultants.
If you provide more value than you cost your employer, you are golden. The important thing is to always know the value you provide, quantify it, and keep a record of your accomplishments.