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How much does an employee really cost?

N

NetGuySC

Golden Member

Hi,

I am hopeing to start my own business in a month or two. I would like to hire an employee to work part time hours at a rate of about $17.50 an hour. My first thought is to pay this employee "under the table", but this really scares me.

So does anyone have any idea of the true hourly cost of this employee? The pay rate will be $17.50, but once you add in workmans comp, unemployement etc etc etc. what would my actual hourly cost be?


Thanks,
Todd

p.s. can anyone suggest a good payroll program
 
QuickBooks will suit you fine for cheap.

$17.50
+ 17% or so matching SS
+ 4-5% payroll for unemployment
+ $50-$200 workmans comp per employee (today's market is hard to tell)
Your liability insurance may go up assuming the employee will increase your gross output.

I don't normally do this for my company. I'm just going by the complete bills I get for the entire company.
 
Could you not just hire him as a contractor and 1099 him/her? I don't believe you incur any of the additional expenses if you do this. Granted, it's more of a pain for the "employee", but chances are if they're part-time anyway, that's what they're looking for.

If you do 1099 them, you might bump up their pay to say $20/hr or something to make it more appealing.

 
When I worked for a Major International Corporation, one of the HR people told me that an employee's total cost (for them at least) is 2.2x their salary. I guess this includes items such as furniture, workstation equipment, software, etc. in addition to the obvious direct compensation and benefits package.
 
Along the lines of what mithrandir2001 stated, for a medium size company, where you have support staff, building overhead and benifits, figure 2->2.5 of the hourly salary in total costs.

These are figures that I have used and seen others use when quoting and billing projects

The 1099 situation is probably best when starting up a company and using a part timer.
 
But if you are the owner and he/she is your only employee, I don't think you have to get workmans comp for him/her. A good insurance policy for you would be good though, just incase something happens.

When you are under, I think, 3 employees then the rules change a lot. With big companies they have to figure in overhead from electric bills, rent, equipment, and such.
 


<< + 17% or so matching SS >>



Employer match is 7.65% including Medicare.



<< + 4-5% payroll for unemployment >>



Unemployment insurance varies from state to state. Most are about 1.5% of wages earned. In some states, the employee picks up part of the tab.



<< + $50-$200 workmans comp per employee (today's market is hard to tell) >>



Workers comp insurance in most states is based on a sum per hour worked. For example, it might be 30 cents per hour. The base figure will vary based on industry classification and be adjusted based on claims history. As a new employer, you get hit on the high end for your industry. In many states, you are allowed to deduct a small portion of this from the employees paycheck to offset the cost.



<< Your liability insurance may go up assuming the employee will increase your gross output. >>



This would have little or no impact on liability insurance.



<< But if you are the owner and he/she is your only employee, I don't think you have to get workmans comp for him/her. >>



There is no state that I know of that does not require worker's comp insurance, even if it is only one employee.



<< A good insurance policy for you would be good though, just incase something happens. >>



The cost of self-insuring or purchasing a private plan for worker's comp is prohibitive for most small employers. In addition, many states have VERY stringent financial criteria you must meet before they will let you do it. Some, called "monopolistic insurance" states won't let you do it at all.

Russ, NCNE
 
Paying them under the table is actually more espensive than paying them through normal channels.

Ryan
 
Thanks all for the info...

I think I will try the 1099 idea....less headache and less liability worries also ( I think)

I really hesistate to pay under the table...I need all the tax deductions that I can get 🙂

 
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