The number of highly skilled professionals keeps rising, making it the best time in recent years to hire employees. However, you may want to look at the cost of hiring employees before getting too excited. The average cost of hiring an employee is over USD 4,600, while it costs employers in excess of USD 28,000 to hire in executive roles, according to a recent Society for Human Resource Management (SHRM) report.
Paying employees is as important as hiring them; the total cost exceeds salary alone. You must factor in other costs, such as job posting, onboarding, and bonuses. These additional costs can make the total cost of hiring twice the salary.
Employers should use the employee cost calculator to determine how much it costs to recruit workers. It can help in various ways, saving time and resources.
This guide explains an employee cost calculator, highlights the crucial factors that make up the total cost, and provides practical steps to calculate employee cost.
What is an employee cost calculator?
An employee cost calculator is a software or tool that enables you to calculate the gross and net costs of hiring an employee. You can either calculate these costs with software or on dedicated web pages.
This tool helps you estimate how much you would spend on add-ons besides the employee's salary. These days, you can determine the hourly, weekly, or yearly cost of adding skilled talents to your ranks by using the employee payroll calculator. Employee cost varies depending on location, employee experience and skills, and their role.
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The total cost of hiring and factors to consider
When calculating the total hiring cost for each employee, you must consider these additional costs:
- Onboarding costs: These include the cost of job postings, interview scheduling, and making the workplace conducive for the new employee.
- Training: This covers the cost of immediate training upon employment and subsequent training sessions.
- Payroll taxes: Employers remit certain percentages of each employee's salary on their behalf to the IRS or its global equivalent.
- Insurance: It includes healthcare, social security, pension plan, and other contributions employers make on behalf of each worker.
- Paid days off: Companies often calculate employee benefits cost because they typically pay workers during sick, maternity, paternity, and annual leaves. Employees may still earn up to 100% of their wages when absent from work.
- Meal breaks: Meal breaks are mandatory in some regions. Employers must provide lunch for workers or give them the equivalent in cash.
- Transportation allowance: Like meal allowances, offering transportation allowances to employees is compulsory in some countries. The employer may provide transportation or pay employees the equivalent bus fare.
- Visa processing fee: Employers who wish to bring a foreigner to their location bear the cost of processing their visa. Some may also cover their flight fare.
- Accommodation allowance: When companies hire certain employees or specialists, they may be responsible for the employee's accommodation.
- Bonuses: Although bonuses come with certain conditions, they also add up to the total hiring cost.
- Overtime pay: Overtime workers earn significantly more than they do during normal working hours. In some regions, employers pay 200% in total to employees working overtime or on national holidays.
How to calculate employee cost
Calculating payroll can be simple with the labor cost calculator. Follow these steps to determine how much your employees cost:
1. Select your preferred calculator
There are many platforms or software for calculating payroll. Start by selecting a website or software that's easy to use. It's advisable to test the calculator with previous employee cost estimates before settling for the ideal calculator.
2. Determine the gross hours
Calculate the gross hours an employee works weekly and yearly. For instance, if the hiring location's standard working hours per week is 40, multiply 40 hours by 52 weeks in a calendar year. This amounts to 2,080 hours per year.
3. Calculate gross pay
You may only need to calculate the gross pay per year. Multiply the employee's hourly pay by the gross working hours. For instance, if your employee earns USD 20 per hour, multiply 20 by 2080. This amounts to USD 41,600 yearly. If you pay employees monthly in your location, multiply their monthly earnings by 12.
4. Calculate net working hours
Now, you want to know the employee's actual hours in a year. Deduct the absent days or hours from the rest of the days or hours they were present. For example, if the employee was absent for 18 days, determine the hours absent by multiplying 18 by the standard working hours per day (8). You would find out that the employee worked 1936 hours.
5. Add additional employment cost
After determining the employee's gross and net working hours, add all other hiring costs such as tax, social security, bonuses, and paid leaves.
6. Determine the total yearly and hourly employment costs
Add each person's gross annual salary to the additional labor costs to calculate employee costs. If the additional labor cost is USD 4,000, add it to USD 41,600, and you'll arrive at USD 45,600.
To calculate the cost of an employee per hour, divide the total labor cost (45,600) by the net hours the employee worked (1936). That would be USD 23.55 per hour. Thus, you pay an additional USD 3.55 per hour for each employee you hire.
Reasons to use an employee cost calculator
Here are reasons why using an employer payroll cost calculator is essential for every employer:
To make onboarding budgets
Having a budget is advisable before proceeding with the employee hiring process. A budget helps you spend reasonably to have enough money to run the business. Making a budget would be difficult without knowing how much certain procedures cost.
With the help of a cost calculator, you know how much it would cost to hire all the employees you need. You can prepare a detailed budget with the figures and focus on onboarding.
To determine the ideal hiring location for global hiring
Hiring costs are not the same everywhere. The cost of employing workers in a region can be twice the cost in other countries. Thus, you may need to use this calculator to determine the best fit for your budget.
You can make informed hiring decisions based on the estimated cost you derive from the calculator if you would like to hire in any region without worrying about the cost, partner with a global HR platform like Skuad.
To prepare for future hiring procedure
Recruitment is an ongoing process, and many companies hire workers every year. Hiring employees in the coming recruitment cycle would be simpler with an employee payroll calculator. It starts with keeping employment cost data from the previous recruitment period.
You can use the estimated costs of hiring to make plans and a budget for prospective employment. It reduces the time it takes to onboard candidates so that you can start hiring in no time.
To adjust spending
The cost calculator can help you reduce operating costs and save money. You can also avoid unnecessary costs when you use this calculator. Before calculating employee hiring costs, you must factor in all spending, including their salary. This helps you to determine the necessary or unnecessary spending you can avoid.
To improve the employee selection process
Knowing how much it would cost to hire employees can make you define and focus on your priorities. Usually, you determine the number of employees you need and the positions to fill before advertising open positions. Hiring costs can be expensive, and knowing the actual costs of employing candidates can help you focus on priorities. Thus, you would avoid hiring more employees than you need knowing how expensive it is to hire.
Employment cost examples around the world
Location is a major factor that determines the cost of employing candidates. The labor cost in Europe is typically higher than in Africa or South America. According to a survey, the average hourly cost of hiring in Europe in 2020 was 28.5 Euros. Salaries and social security contributions are also major determinants of labor costs.
According to Eurostat, hiring costs increased most in Lithuania, while Denmark and Bulgaria have the highest and lowest labor costs, respectively.
Meanwhile, the employment cost for hiring civilian workers in the United States will increase in 2022. The average salary and benefits costs were $28.16 and $12.74 per hour, respectively, as of March 2022.
Partner with Skuad for international hiring and compliance support
Fortunately, partnering with a Global HR platform like Skuad can help save money associated with hiring and paying employees. We can help you take care of your employee benefits and other crucial additional costs to help you significantly reduce your hiring costs. Contact Skuad today for a comprehensive breakdown of how we can help you with your employment costs and hiring endeavors overseas.