Many times business owners find they are at a point where an employee needs to be hired in order to maintain the level of customer service, or remove some of the work load from the owner. Understanding the costs associated with hiring an employee is important to make sure hiring is the right option for you at this time. Let’s take a look at costs you’ll incur when hiring a worker.
The first cost is the wage to be paid. This can be either an hourly rate or a salary. Make sure you know your state’s minimum wage if hiring entry level help as it may be more than the federal minimum wage. The second cost to consider is payroll taxes which include social security, Medicare, federal unemployment as well as any state taxes that apply. Each state has its own employer taxes, and they can change from year to year. Some states have rates that are different for employers. Research the current tax rates so you know exactly what you will pay when you hire an employee.
When an employee is hired, you must carry worker’s compensation – the insurance you pay based on the wages and types of work performed. The cost is based on risk (what is the likelihood someone would be injured in this area of work?) Another area of expense to consider is if you’ll offer benefits such as medical insurance, vacation/sick pay or other fringe benefits, and if so, how much will these benefits cost?
There are also costs you may not realize can be related to hiring a new employee. Some business license fees are based on the number of employees or the total wages paid, so hiring a worker may increase your annual license fee. You may also find that overhead costs increase due to needing to purchase additional equipment or pay user/license fees for software.
When determining if it is the time to hire, make sure you consider all costs of employment. Once you know all expected costs, you can make an educated decision regarding when the right time to hire may be.