The Real Cost of Each Employee

Over the coming weeks our team will be sharing some insights into employees - including calculating your ROI on each employee, improving staff culture & the importance of setting KPI’s to improve performance.

Prior to doing this we need to know one thing – how much does each employee cost you?

Like many business owners you probably look at the above and think – stupid question – I pay employee X say $50,000 a year. So, let’s take this as an example;

At $50k per year the above business owner has assumed the following;

Annual Wage $50,000 260 business days
  $192.31 Per day  
  $961.54 Per Week (52 Weeks)  
  $25.30 per hour (38 hour week)

 

The cost of the employee is $25.30 per hour, or $50k per year over a full year of 260 days (52 x 5 days).

Next, we need to add On Costs. This includes statuary superannuation, payroll tax, workers compensation, leave loading (if applicable) & relevant insurance. General rule of thumb is 16.5% but this can vary so please check your actual costs for each area.

 

Oncosts (16.5%) $8,250 Superannuation, Payroll Tax, Workers Compensation, Insurance
           
Sub - Total $58,250 Is this the true cost?      
  $29.48 per Hour      

 

As you can see by the above we are already 16.52% above the original wage.

The next factor of employing staff is statutory entitlements – annual leave, sick leave & public holidays. We need to factor these into you knowing exactly how much a staff member costs you.

 

Annual Leave minus 20 days Remember you are still paying for this time!
Sick Leave minus 10 days Remember you are still paying for this time!
Public Holidays minus 11 days Remember you are still paying for this time!
  41 Days lost    
  260 Original amount of days  
  219 Eligible work days    
         
Wage + On-cost $58,250      
  219 Actual work days    
         
  $265.98      
  $35.00      
         
  38.31% increase on the original $50K per year

 

These three entitlements eliminate 41 days from the maximum of 260 we originally allocated, meaning each staff member has a maximum output of 219 business days!

Scarily your cost remains the same $58,250 OR now $35 per hour, a jump of 38.33% above our original calculation of $25.30.

In general, a 35%-45% increase in hourly rate is normal for employing people on a full-time basis. Other costs could include – employment costs (recruiting) and training. Both of which would increase the $35 per hour again.

So why is this important to you and your business? In the next 2-3 weeks we will be taking you through how to calculate an employee’s return on your investment. Unfortunately, in most businesses your employee must be at work to earn the business money! So the above steps are necessary to get a true cost of every hour they work for you.

Employee ROI is extremely important for you to set KPI’s (key performance indicators) so they not only cover their cost, but return the business a positive ROI.

 

Yours in partnership,

 Cameron Newman