How Much Does It Cost To Put An Employee On Payroll?

Navigating the intricacies of employee benefits reveals a multifaceted investment beyond mere salaries. It’s a world where health insurance, retirement plans, and a plethora of other perks come together, adding layers to the employment cost puzzle. But what does this complexity mean for your business’s financial health? Embarking on this exploration, we aim to shed light on the average monthly cost of employee benefits, demonstrating its impact on strategic hiring and retention. This journey is not just about crunching numbers; it’s about understanding the balance between making strategic investments in your workforce and managing your fiscal responsibilities effectively. Through this lens, we delve into the real cost of employment benefits, guiding businesses towards informed decision-making in today’s competitive talent landscape.

A business can calculate an employee’s total cost of employment by adding their base compensation and any additional expenses accrued by the business due to hiring and employing that person. There is no one-size-fits-all solution when it comes to calculating the total cost of putting an employee on payroll. Still, the formula most commonly used to measure employee costs is an average of 1.25 to 1.4 times the employee’s basic salary. A U.S. Bureau of Labor Statistics report shows that a civilian worker’s average cost is $38.91 an hour.

A Closer Look at Employee Benefits

Employee benefits stretch far and wide, forming a safety net that catches much more than the occasional fall. They’re the lifelines that employees depend on, covering crucial areas such as health insurance, paid leave, retirement plans, and disability insurance. But it’s not just the big-ticket items that count. In today’s work culture, the definition of benefits has broadened, embracing everything from mental health support to gym memberships and remote work opportunities. This variety not only caters to the diverse needs of the workforce but also reflects a company’s ethos, standing as a testament to its values and commitment to its employees’ well-being.

Navigating the Cost Factors

Peeling back the layers on the cost of employee benefits reveals a complex web of factors at play. The size of your business sets the stage, but it’s the scope of your benefits plan that pulls the strings, directing the financial performance. Yet, this is just the tip of the iceberg. The industry you’re in, the location of your operations, and the demographic makeup of your workforce all throw their weight, influencing costs in ways both expected and surprising. A tech startup in Silicon Valley faces a different financial landscape compared to a manufacturing plant in the Midwest, just as a company with a younger workforce has different considerations compared to one with employees nearing retirement.

What Is The Average Monthly Cost Of Employee Benefits?

In most cases, the business’s scale and the benefits plan’s scope play the most prominent role in determining the overall cost of a company’s benefits program. Despite all that, businesses of all sizes find that offering more coverage and benefits can often be a valuable investment in the long run.

Total compensation consists of 69% wages and 31% benefits. Salary plus benefits are calculated based on a range of 1.25 to 1.4 times the employee’s base salary, which aligns with the basic salary plus benefits model. An employee earning $100,000 per year will cost their business between $125,000 and $140,000 per year once benefits are factored into the calculation. An employee earning $100,000 can cost a company between $125,000 and $140,000 per year.

Health Insurance

Generally speaking, the health insurance policy that a company offers to its employees is the most considerable portion of its employees’ benefits as part of its employee benefit plan. Each year, employers pay $7,188 on average for single coverage and $20,576 for family coverage, according to the Kaiser Family Foundation. It is essential to understand that costs can be significantly different depending on your business. Still, it is usually between $5,000 and $30,000 per employee per year, depending on the amount of participation.

Disability Insurance

The purpose of disability insurance coverage is to provide employees with protection in the event of an illness or injury that renders them incapable of working. There are several options for employers regarding the cost of coverage. These include paying for it, sharing it with their employees, or offering group coverage to their employees.

The cost of disability insurance can be very high when purchased as an individual policy. Still, employers can reduce the cost by buying a group policy on an employee-by-employee basis. The cost of coverage can be several thousand dollars, depending on the range chosen. It is estimated that only a quarter of American workers have access to disability insurance through their employer. Making this available as part of your benefits package is one of the most effective ways to stand out from the competition.

Workers’ Compensation

Typically, workers’ compensation insurance covers the lost wages of workers injured on the job and medical expenses incurred by them as a result of their injuries. The calculation of the cost of workers’ compensation is based on a complicated formula. 

However, businesses with relatively low risks, such as accounting firms, law firms, technology companies, etc., can expect to pay a low premium. In such cases, businesses should estimate this premium at around $300 per employee per month. However, this basic premium will go up with higher risk jobs. Construction, for example, is a high-risk field that could cost up to ten times this basic premium. Many states require employers to provide workers’ compensation to their employees as a condition of employment.

Voluntary Benefits

The importance of quality of life benefits in the job market continues to grow. As a result, many businesses are considering benefits such as paid time off, mental health coverage, child care, yoga lessons, gym memberships, and other wellness programs. These voluntary benefits are a way to attract and retain talent. As a result, estimating the costs associated with these programs is complicated. Depending on the size of the workforce, the company, and the type of benefit selected, these costs can vary widely.

However, the value these options can bring to employees usually makes the investment worth it. Employees identified regular remote work, employee discounts, flexible hours, and paid insurance premiums as some of the top benefits in a recent Staples Workplace Survey of more than 1500 employees.

The employees ranked employee discounts, free snacks and coffee, streaming subscriptions, gym memberships, onsite fitness programs etc. as benefits they would like to have but that are optional. To attract and retain high-quality and productive employees in the future, companies should seriously consider expanding their employee benefits programs.

Manage Your Benefits With Milestone

At Milestone, we own the payroll process, so you don’t have to. We will ensure your benefits align with your company’s goals and budget with customized pricing based on the level of service, the number of employees, and the pay cycle frequency. Contact us today to see how we could help your company.