Employee Cost: Is It Really What You Think It Is?

September 2, 2011
Posted by Link Staffing Services

For many of us, employee costs are our single biggest operating expense, which makes controlling those costs vitally important.  Yet many businesses don’t accurately calculate the full costs associated with each employee, focusing on salary alone, or salary and insurance, when making important staffing decisions. Their estimates of their employee costs may be artificially low. Is that any way to run a profitable business?

Employee Cost Analysis

Depending on the type of staff you employ, you may want to determine the cost of your employees per hour and/or annually. Either way, you’ll want to total all the direct and indirect costs associated with that employee.

Direct costs are wages paid to workers during an accounting period, plus payroll and related taxes and benefits. They could include:

  • Hourly Pay
  • FICA Taxes
  • State Unemployment Taxes
  • Federal Unemployment Taxes
  • Workers Comp Costs
  • Vacation Pay
  • Holiday Pay
  • Sick Pay
  • Other Personal Days
  • Health Insurance Costs
  • Retirement/Pension Costs
  • 401K Expense
  • Educational Assistance
  • Pre Employment Testing
  • Severance Pay
  • Overtime Pay


Indirect Costs are all the extra costs associated with hiring workers and employee administration, including:

  • Employee advertising and recruiting costs
  • Health & welfare plan administration
  • Labor relations
  • Payroll set up and processing
  • Training
  • Tax filing
  • EEO/OSHA compliance
  • Workers comp administration


Wow, that’s a lot of costs! Once you total them accurately, you may take a very different view of your staffing. Certainly, you’ll be able to make better decisions.

Call to action: Download Link’s FREE Employee Cost Analysis Worksheet.

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