How Much Do You Cost Your Employer?
Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
TELLING TIPS: You’ve been working at your job for a while, and you know that your boss has a number of expenses, such as rent and electric, product and insurances, but have you ever wondered what you cost? Or you apply for a job, and the employer says that you’ll be paid as an independent contractor. Ever wonder why?
In a nutshell, on an average, the hidden costs are 25 to 40+ percent above your wage/salary. Here’s some of the detail:
- Payroll Taxes
- Social Security (6.2 percent) (The ‘payroll tax holiday’ does not apply to your employer.)
- Medicare (1.45 percent)
- Federal & State Unemployment Insurance Tax (~5 percent)
- Workers’ Compensation and Workers’ Disability Insurance (~8 percent)
- State and City employer fees (~3 percent)
If you are making $15/hour, the employer’s gross cost is about $18.
Holidays, Sick Days, Vacation, Breaks
Some of these benefits are required by Federal and State employment laws, or by your unions, or just because every business wants to be competitive. All of these paid times-off add to your salary, but needs to be paid for by your employer, who has to add an additional amount to their product sales price. How many paid days do you have a year?
Health And Dental Insurance
Many of you are receiving this benefit also, although there is a major trend not to offer this — or at least not in full. You know that this insurance has a hefty price tag.
On a side note, here are a couple of things your employer may consider:
- A Health insurance Premium-Only Plan (POP): You pay for your share of the premium by payroll deduction, as a salary reduction, and therefore you save income tax, Social Security and Medicare taxes.
- Flexible Spending Account Plan: Contributions to this plan are also considered a salary reduction. You contribute throughout the year, and are reimbursed for allowable medical expenses, including health insurance premiums, deductibles, and co-pays.
Retirement Benefits
Many of these plans are paid by you, the employee, but many employers match a portion of your contribution of up to six percent.
The employer’s cost for your medical insurance and retirement benefits is not just as mentioned, but there is a fee for running and for the Federal and State compliance of these plans. The average is about $5,000.
Overhead Costs
The most obvious is your work space and computer, and your desk, chair, and phone. Add the office supplies.
If you are a new employee, consider the extra time (in weeks or months) you need to learn your job proficiently, as well as the time to teach and supervise you.
If your employer is large enough, you might have been given handouts. Who prepares these handouts? Probably the HR department, consisting of those who do not directly add to company productivity, as well as legal help and production costs.
Let’s not forget the accountants who have to file the quarterly payroll tax reports, make weekly or monthly tax payments, and year-end W-2 preparation.
Additionally consider items your employer may provide like a uniform, tools, protective gear.
Conclusion
So if you are late for work a few minutes every week, or take extra time to get coffee or talk with a co-worker during the day, keep in mind that although you are probably a good worker (and definitely deserve the extra time, and a raise), the hidden costs are expensive.
Have a good week, and remember: A lot of people still have the first dollar they ever made. Uncle Sam has the rest.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.