Wages, payroll taxes, time off, employee benefits—each of these helps you when calculating employee cost, so it’s important to factor these expenses into the budget before hiring someone.
You can calculate total employee costs in a few different ways. One of the most common and secure formulas though is somewhere between 1.25 and 1.4x their base salary.
To get a good estimation of an employee cost, check out our list of cost ratio numbers organized by regions below.
How to calculate employee costs around the world
To get a good overview of how much an employee will cost you after hiring, we created this list of ratio number. The number is the ratio between the base salary and the total compensation and liabilities, and by multiplying it with the base salary you are expecting to pay your new recruit, you can get a good estimation for how much an employee will cost.
Here is an example:
Monthly base salary (45,000 pesos) X Ratio number (1.299) = Monthly cost (58455 pesos).
You can also use a Global employment cost calculator to help you figure out an employee’s overhead costs.
Mandatory added costs around the world
When calculating overhead cost per employee, you’ll also need to factor in mandatory added costs. These’ll vary from country to country, but generally include:
- Healthcare programs
- Retirement, pensions, and social security plans
- Unemployment compensation
- Life insurance
- Disability protection
- PTO
- Illness days
Let’s look at a few mandatory costs from different countries.
In Indonesia, companies must pay 4% for health insurance, while businesses in New Zealand don’t need to pay for health insurance because it’s free or provided at a low cost by the government. Instead, New Zealand companies pay mandatory costs for pension (called KiwiSaver) and Accident Compensation Corporation.
Similarly, many countries like Norway don’t need to factor in social welfare mandatory costs (like healthcare or PTO), because by law, citizens get maternity and paternity leave, overtime, healthcare, and other benefits.
The US takes a different route. As healthcare is privatized, many companies offer maternity leave as a benefit because it’s not subsidized by the government. Whereas in European countries such as Spain, working citizens are legally entitled to maternity leave, so Spanish companies don’t need to pay a mandatory cost for that.
Aside from paying mandatory costs, employers sometimes provide employees with other benefits as well so they can hire the best talent.
Additional supplemental Benefits
To stay competitive and attract top employees, some employers will provide insurance plans, ongoing training materials, and work from home supplies. Here are a few examples of additional benefits:
- An unlimited leave policy
- Weekly meals in the office
- Student loan assistance
- Savings on or full coverage for gym subscriptions
- Flexible hours
Not only can the above supplemental benefits impact employee cost, aspects like location and performance can also factor into the equation.
What impacts employees’ cost?
Beyond benefits, it’ll cost your company more money based on various factors. Let’s go through some of them:
Location
Many companies offer location- or geo-based salaries to cover remote employee’s cost of living expenses, so if an employee lives in Idaho, for example, the company can pay them less than a team member living in New York City.
Industry
If your company hires an investment banker, the employee will cost more than someone hired as a secretary.
Market conditions
If demand for a profession is high relative to supply, you’ll pay more in employee compensation, but if there’s a lower demand for certain skills, cost per employee will drop.
Full-time vs part-time
Most businesses hiring full-time employees will pay more towards the employee’s salary and benefits than someone only working part-time.
Education and Role
The more of an expert an employee is in their field or role or the more education they have, the more companies may have to pay in employee benefits and compensation.
Performance
Employees that help your company make faster, more accurate decisions, increase operational efficiency, drive revenue, spot market trends while they’re hot, and can address issues that impact the business may have higher costs.
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FAQs
How much do benefits cost per employee?
According to the U.S. Bureau of Labor Statistics, benefits cost $11.42 per hour per employee. On average, the benefits account for 29.6% of the average cost per employee. Note that employee benefits cost will vary by job position, industry, and geographic area.
How much does it cost to train a new employee?
According to the Association for Talent Development, businesses spend an average of 1-2 months’ salary on training new employees. This figure will depend on training materials and overall employee costs. To calculate the full cost of an employee, multiply the ratio number by the base salary.
How much does employee turnover cost?
Employee turnover is expensive. Some studies have predicted that whenever a business replaces a salaried employee, it costs 6 to 9 months’ salary. If an employee makes $60,000 a year, it’s $30,000 to $45,000 for recruiting and training expenses.
Is labour a fixed or variable cost?
Labor is a semi-variable cost. Semi-variable costs include both variable and fixed costs. Variable costs depend on any increases or decreases in production. Fixed costs stay the same, even if production fluctuates. In sum the cost of labor will increase or decrease according to production or sales.
How much do employees cost in Brazil?
If the minimum wage in Brazil is R$1,302.00 (247.63 USD) employees cost $1699.11. To calculate employee costs, you need the right formula. One of the more well-known, dependable formulas multiples the ratio number of the country by the base salary (1.305 x 1,302).
