HR Costs
Do you know your real cost per employee? Many employers think they know the answer to this question. Often they are surprised to learn not only have they underestimated the total cost of their employees but the actual cost is almost twice that of just the payroll.
When calculating labor expenses, employers should look beyond just salaries and wages. They should also consider the following HR costs:
- Recruiting & Hiring Costs
- Training Costs
- Employee Benefits
- Payroll Taxes
- Regulatory Compliance Costs
- HR Administration Costs
- Risk Management Costs
- HR Technology Costs
These factors can dramatically increase the real cost of an employee. In addition, there can be other unexpected costs. Consider the following data on human resource costs.
HR Cost Facts
- The average employee’s benefits package, including payroll taxes, costs just
under $15,000. (Source: The Wall Street Journal)
- Employee benefits now represent 40% of total compensation. (Source: The Wall
Street Journal)
- The average small business owner spends up to 25 percent of his or her time handling employee-related paperwork. (Source: US Small
Business Association)
- 1 in 4 privately held companies have been sued by an employee or former employee. (Source: Chubb Insurance)
- The average litigation and settlement costs for a company with harassment and discrimination training are $115,000 and $85,000 respectively. Without training, the average costs increase to $960,750 for litigation and $304,000 to settle. (Source: Jury Verdict Research’s “Employment Practice Liability: Jury Award Trends and Statistics, 2005 edition)
The Impact of Regulatory Costs on Businesses:
Annual Cost per Employee
| Type of Regulation |
All Firms |
< 20 Employees |
20 - 499 Employees |
500+ Employees |
| All Federal Regulations |
$5,633 |
$7,647 |
$5,411 |
$5,282 |
| Economic |
$2,567 |
$2,127 |
$2,372 |
$2,952 |
| Workplace |
$922 |
$920 |
$1,051 |
$841 |
| Environmental |
$1,249 |
$3,296 |
$1,040 |
$710 |
| Tax Compliances |
$894 |
$1,304 |
$948 |
$780 |
Source:US Small Business Administration
The Real Cost of a $25,000 Employee is $56,667
| Cost Function |
Cost |
| Gross Wages |
$25,000 |
| Benefits and Taxes |
$23,333 |
| Training |
$8,333 |
| Total Employee Cost |
$56,667 |
Source: Wharton Business School, University of Pennsylvania