If you are considering hiring an employee and are unsure of the extra costs that this would incur, this post is for you.
You are probably already aware that if you hire an assistant or an intern, you need to factor in more than just their base pay. But how much? If you are going to do it right (legally), below are some things you should consider:
[Some expenses below vary by state. For ease of explanation, I used Wisconsin rates as an example. I would be happy to research your own state for you if you are interested. Please inquire!]
Base Pay: This is the one thing you can control! What can you afford? What is your employee worth?
Social Security: This is a federal tax. The 2009 rate requires you to withhold 6.2% of the gross pay from the employees check and requires you to pay an equal amount (6.2%) out of your own pocket.
Medicare: This works the same way as Social Security. The rate is 1.45% for both you and your employee.
Federal: Maximum tax of $56 per employee per year (the amount could be less based on gross wages and/or how long the employee works for you)
State: This rate definitely varies. For newer businesses in WI the rate is 3.25%.
Unemployment Insurance payments are paid out of the employer’s pocket, not employee withholding.
Workman’s Compensation Insurance: The purpose of this insurance is to cover your employees if they are injured on the job. It is required in every state (except Texas), but rates will vary. We pay $0.72 per $100 of gross wages. Wisconsin requires that a minimum premium amount be met. After all is said and done, it amounts to about 2% of gross wages.
NOTE: Work comp. rates are heavily determined by the type of tasks your employees will be performing. (There is obviously more risk for someone who does on-site installations versus someone who does office work.) Do not let the insurance agency who handles your work comp. insurance enter a classification code that does not describe your employees’ tasks. This happened with our policy and I had to go through a long process of getting it changed. We ended up saving $800 by making sure everything was straight, so it was worth it.
When you add all of this up, it comes out to approximately 13% of gross pay. A $10 per hour job has just become $11.30. This obviously does not include extra costs such as health benefits, parking, payroll software, and much more depending on your specific business.
In a future post, I will cover the how-to of processing the necessary payroll paperwork.
What other expenses (direct or indirect) do you find yourself incurring with the hiring of employees?