There are currently over 11 million job openings that exist in the USA. People are looking for jobs, and plenty of locations are available for those searching. Though, do all those employers understand the true cost of hiring someone new?
This cost, or “payroll burden,” is the true price that one pays when they hire either local talent or worldwide talent. This article will help you understand what that entails and how much you can expect to pay. By the end of the piece, you should be able to move forward with a more realistic idea of your outgoings related to each person you hire.
What Is Payroll Burden
Payroll burden, also known as labour burden rate, is how much it costs to hire an employee. While you might think that this encompasses only their wages, in actuality, it is so much more than that. On top of this, you can expect to pay for other things, including:
- Payroll taxes
- Employee benefits
- Healthcare costs
- Unemployment payments
- Statutory holidays
- Company-sponsored vehicles
- Company mobile phone
This is not a comprehensive list, and you might also find that other costs exist for any specific employee.
Not all these items might apply to you, though. Different countries, and even regions in the same country, may handle the payroll burden differently.
This burden is sometimes written as a dollar amount. This is the comparative rate at which you spend extra dollars to support an employee. For example, with a burden of $1, then for every dollar spent on wages, you are paying an extra dollar in the burden.
Another thing that affects the payroll burden of an individual is the core amount of money that you pay them. You should remember that if someone lives in an expensive city, you are likely to pay them more to remain competitive in salary. If that is the case, their payroll burden is going to be a smaller number in comparison.
Using this, you can not only discover how profitable you are as a business but track the burden of every employee. If any individual incurs upon you a very high burden, you might want to look into methods to mitigate such issues.
How Does Payroll Burden Affect You?
As you continue to work in your industry, you need to compare yourself with your competitors. If you can track your full expenditure for your employees, you will be able to make better decisions about hiring moving forward. On top of that, knowing the different payroll burdens in different regions will help you decide where to hire your workforce and why.
Another area where payroll burden might affect you is when you decide to hire extra temporary staff. For example, if your staff is out of the office due to holidays and vacations, or sickness, you might need to hire extra people. This will be more payment over and above the normal amount that you would pay to the person who is now out of the office and providing no benefit.
In short, you can use payroll burden to work out if you are paying people the right amount of money or if you are granting them too many benefits. You can then use this information to adjust your pay scales up or down to save money or become more competitive.
How Do You Calculate Payroll Burden?
You calculate payroll burden by first discovering two pieces of information:
- How much you are paying an employee as a salary
- How much extra you must pay each month to keep the person legally employed
To calculate how much extra you are spending, take all the extra costs associated with employing someone and add them together. These could include their:
- Employment payroll taxes
- Health insurance even if supplied by a third party
- Retirement contributions
- Paid time off
- Workplace benefits
Add these together, and you should get a number showing the total of all the extras. You can then calculate this by using the following sum:
Extras / Salary x 100
You can then describe the burden in dollars. This means that for every dollar that you spend on salary, you are spending this number of dollars extra. If the number is $1, that means that for each dollar you spend on salary, you must double it for that employee at the end of the day.
How Much Can You Expect It to Be?
Payroll burdens can end up very different in different countries or regions. This is because of different laws and tax regulations that can affect organisations.
For example, in the United States, people consider an organisation’s social security contributions to be low. They are for an average employee, around 7.5% of the employee’s salary.
In Germany, instead, they equal around 25% of the employee’s salary. This can become a heavy burden on any organisation looking to hire remote workers within Germany instead of the USA.
You can also look at the comparison of the burden compared to living costs. In China, for example, where the average annual salary is only $14k, there is a much higher payroll burden. This is because, as a percentage, it is going to be much higher, approaching $0.36 on average.
At the same time, the payroll burden in Brazin is around $0.75, although the average annual salary is around $44k. This can mean that you will pay a huge amount of money to support any remote workers you hire from Brazil.
Resolve Payroll Burden
With the above information, it is likely that you now have a much better idea of what payroll burden is and how it affects you. As such, you can move forward with the ability to balance your organisation’s budget with fewer concerns.
Like payroll costs, there are many aspects to hiring that are not always taken into account. This is why you sometimes need a little help. Our specialists are ready to talk to you about your organisation and what it might need.
So, pick up the phone today and talk to us about your future.