Cost of an Employee: Government and Some Employers Don’t Get It

by Michael Haberman on September 20, 2010 · 0 comments


Believe it or not, there are still many people who think that the cost of having an employee is just the wage you pay that employee. If  you are one of them I have some news for you…. YOU ARE WRONG BUCKO! Included among this group are the Federal Government, some employers and many employees.

What inspired (if inspiration is the appropriate word) is the passage of the most recent “small business stimulus package.” This package is supposed to free up money to banks in order to allow them to lend more money to small buisinesses in order to allow them to hire more employees. Well I have news for them, it is probably NOT going to spur alot of business to borrow or to hire. There are risks and costs associated with hiring that go beyond the wage and some of them will discourage small businesses from taking that step in an uncertain business environment. The costs associated with a new hire include:

  • Recruitment costs, which include:
    • Ad costs
    • Cost of time spent in interviews
    • Cost of reference checks
    • Cost of any screening test conducted
    • Cost of drug testing
  • The actual wage you have to pay
  • The tax burdern you assume, which includes:
    • FICA
    • Federal unemployment
    • State unemployment
    • Workers’ Comp
  • Cost of healthcare.
  • Cost associated with health insurance impact of employee or employee’s family health
  • Cost of paid time off, which includes:
    • Sick time
    • Vacation time
  • Cost of training, even for OJT
  • Cost of lost productivity for workers conducting training
  • Cost of opportunities lost during training and onboarding due to inept, untrained, incapable employees
  • Cost of materials, tools, uniforms, equipment, etc. for new employee
  • Cost associated with turnover if employee leaves because of:
    • mismatch to job
    • lack of qualification
    • lack of trainability
  • Cost of impact on experience rating on Unemployment or Workers’ Comp

So as you can see hiring someone is not as simple as have some money in pocket- hire an employee. And I just don’t think the government gets it. Most people in congress have never run a business, so they just don’t know. Or if they did, it was so long ago they forgot. But, in my opinion, this last bit of stimulus is not going to spur anymore hiring in small businesses than did the last stimulus bill.

There are two other groups that don’t get it either. One group is that type of employer who thinks they can hire, try some one out and if they don’t work out just discard them. If they paid attention to this list they would see that could be an expensive lesson. This is why temporary agencies were created.

And the last group that doesn’t get it is some employees. If that is the case then you need to do some education. Employees should realize the cost associated with having them on the payroll. A bit of education may help you retain someone.

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{ 1 comment… read it below or add one }

Michael D. Haberman, SPHR September 20, 2010 at 10:40 am

I am sure I have left some costs out. Whatelse should be included in this list?

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