At The Abundance Group, we are often asked the big question, “What costs can I expect to pay if I hire employees?” We feel the uncertainty as creative business owners determine if they should build a team or not. Trust me, we get it because we understand that money is a big factor when determining if you can afford a team. Tons of creative business owners are concerned about spending a lot of money to hire and the overwhelm begins to set in.
Although we could go on and on for days about how worthy of an investment growing a team is and how you’ll make the money back 20 fold, we still want to lay out the costs for you to hopefully help you know what to expect to pay per employee! So what are the 8 costs associated with employees? Let’s dive in!
1. FICA Tax
This includes Social Security Tax and Medicare Tax which is 7.65% of the employee’s wages up to $132,000. We teach you to round to 10% in our estimation tools within our Intensive. (*see more information below)
2. Federal Unemployment Tax
This cost is 6% of gross wages paid for the first $7,000 in wages. Depending on your state, you may get credit back if unemployment isn’t filed by workers within your company.
3. State Unemployment Tax
The cost of this truly varies across each state and your claims experience.
4. Workers’ Compensation
Costs vary from state to state. Every state, except Texas, requires employers to purchase worker’s compensation insurance. If you’d like to learn more, The Hartford has a great resource here that can tell you more. It is broken down by state so you can feel confident that the information you are gaining is valuable to where your business is located.
5. Running Payroll
Most employers run payroll every 2 weeks, which is usually a base cost (typically between $35 – $55 per payroll run), plus a per employee cost (around $1-$2.) Depending on the size of your team, you are looking at a fixed cost of $36 – $190 per month.
6. Time Training Your Team
This will vary based upon your training program, as well as the experience level of the team member. You will want to note that this isn’t the cost of setting up the training; it’s the team member’s pay during their training period. Having your onboarding documents prepared, easily accessible, and organized into a workflow will greatly help this time to be efficient.
7. Time Spent Hiring
You will be formulating a job listing, posting it, accepting applications, vetting candidates, and interviewing. Yes, this will take your time but you want to do it right to ensure you get the right candidate! Next you will need to write an offer letter as well as the hard part…rejection letters. While this will take your time, we will say it again…building your team is a worthy investment!
8. Time Spent Onboarding
Once you have a great hire, your time is still needed to get them truly feeling like a part of your team. You want new hires to feel free to ask questions to ensure that they are learning and acquiring the skills to be successful in the role. Know that it will take more of your time at first as you establish a workflow and your new hire becomes comfortable in their role. We promise, if you spend this time now, your future self will thank you because the payoff in the long haul is huge!
As promised above, here is more info you will want to know about FICA tax.
*FICA Tax Withholding Rates [Here’s how to calculate them.]
There are actually two different rate components, broken out as follows:
- The Social Security (OASDI) withholding rate is gross pay times 6.2% up to the maximum pay level for that year. This is the employee’s portion of the Social Security payment. You as the employer must pay 6.2% with no limit.
- The Medicare withholding rate is gross pay times 1.45%, with a possible additional 0.9% for highly-paid employees. Your portion as an employer is also 1.45% with no limit, but you (the employer) don’t have to pay the additional 0.9%
- For a total of 7.65% withheld, based on the employee’s gross pay.
Are you feeling overwhelmed?
That is OK! When you first begin this process, it can feel like a lot to take in. Reach out to us via DM on Instagram anytime! We want to help you on this journey because we firmly believe that building a team is a decision you’ll be glad you made!
[…] is this going to cost me?” and it is a completely valid question that we address in our blog post: 8 Costs Associated with Hiring an Employee. You will be surprised, maybe even shocked, to learn that it isn’t as scary as you think. Hiring […]
[…] for next steps? Check out our blog to see what it costs to hire an […]
2 Comments on 8 Costs Associated with Hiring an Employee