5 Factors that Impact the Fully Loaded Cost of In-house Employees

Dec 30, 2022

fully loaded cost of employee

Growing a business and building your team will almost always require hiring and adding employees to your payroll. If you’re looking to grow your team, a budget based on compensation could, however, surprise you when the fully loaded cost of each employee shows up on your expense report.

Let’s go over what an employee’s fully loaded cost is, and what you can do to keep growing your team, but not as fast as your costs.

What is the Fully Loaded Cost of an Employee?

The fully loaded cost of an employee is the summary of all the expenses a company incurs by hiring an employee. This will include other costs apart from the employee’s base compensation, particularly federal and state taxes, and what benefits your company offers.

So how much does an employee really cost? Total employment costs vary but as a rule of thumb, you can consider amounts between 1.25 to 1.4 times each employee’s base compensation.

Hiring one employee with an hourly rate of $25 then sums up an annual $52,000 costing you, in total, between $65,000 to $72,800 per year.

5 Variables that Impact Employee Cost 

Here’s a list of common factors that are considered when adding up employee costs.

Compensation

Your employee’s base compensation comes from their hourly rate or monthly and annual salaries. This is the amount that goes on your job ads. This is also the amount that becomes the basis for how much more an employee costs you as taxes and other costs are usually percentages of your employee’s fully loaded cost.

Recruitment

Ever heard about the hidden recruitment costs of employees? That’s because there are a lot of factors that add to this amount.

Your employee’s recruitment costs are the summary of how much you’ve spent on recruitment software, compensating recruiters, advertising job posts, and conducting background checks. There are also expenses coming from human resources for designing and conducting training and onboarding for your employees.

The total recruitment cost you incur for every employee becomes a part of the fully loaded cost of that employee. This amount can easily become substantial for any business, which is why churn rate is an important metric for businesses, considering the new costs from finding replacements and productivity loss.

Overhead Costs

Overhead costs are the total amount you spent for operating a business that you can’t directly charge into revenue-generating activities. These include rent, office supplies used, and operating and administrative expenses. If you provide off-site allowances to employees, that’s also part of their overhead cost.

Depending on the nature of your business, there could be other items on your overhead expenses report. And as your business grows, overhead costs are typically expected to do the same.

Payroll Expenses

For companies in the USA, there are some mandatory costs coming from having employees that need to be covered by employers. 

If you’ve paid at least $1500 in wages for a quarter, your company is required to pay the Federal unemployment tax. This is on top of paying the mandatory state unemployment tax to also address unemployment problems in your state.

The Federal Insurance Contributions Act also requires that your business matches your employees’ 7.65% FICA tax rate. This amount is based on their compensation rate and will contribute to their social security and Medicare taxes.

Unless you’re based in Texas, you will also have to include your worker’s compensation insurance on your payroll expenses. The amount will differ based on your nature of business, but will overall contribute to protecting your business from losses in case an employee gets hurt on the job and needs wage replacement 

Employee Benefits

Employee benefits are cost drivers that aren’t mandatory but recommended if you need to make your job offer more attractive to candidates. These include health insurance plans, additional dental, life, or disability insurance, 401(k) matching, and paid time off.

Apart from making your offer more attractive, insurance plans also help you invest in your team’s well-being and future, and save you from added costs coming from medical emergencies and situations.

The same goes for matching your employee’s 401(k) retirement fund. Doing so can help reduce employee turnover and replacement hiring costs while providing tax savings to your company.

Paid time off is immediately attractive to candidates, but providing added flexibility on how they can be used, credited, or converted can further improve this. These are all costs, however, and sometimes vesting periods are needed to ensure that an employee can commit to being a reliable team member.

fully loaded cost of employee in-house

Outsourcing to Reduce In-house Costs

While all these costs make sense when it comes to investing in the talent you’d want to keep and nurture for the team you’re building, there are some strategies you can implement to reduce the fully loaded cost of in-house employees.

One way is to automate more of your business processes to eliminate the need for more people, at least in the near future. This will require some investment in tech, but the scalability could far exceed the cost.

Outsourcing to offshore virtual assistants is also a strategy used by other business owners and Fortune 500 companies. By arbitraging labor costs, you can continue to add the talent you need to your team without hiking up total employee costs. 

Hiring one virtual assistant could save you up to $60,000 on operating costs per year. Because of the combined savings and added productivity, getting virtual assistants has proved to be a cost-effective strategy for businesses worldwide.

If you’d like to start growing your team faster than your costs by outsourcing to virtual assistants, you can fill out this form so one of our Consultants can get on a discovery call with you.

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