Whether you are the Director of a multi-million organisation, setting up your own Limited Company, or other business venture, knowing where your money goes and how much you spend on resources is essential. Staff costs are one of the biggest expenditures for a company, but it isn't just wages that cost the business money, there are additional expenditures, known more commonly as 'on-costs'. This calculator is designed to make you more aware of your current staff costs, help you plan ahead for your financial year, anticipate staff costs for future expansions and review past costs, in order to predict future costs. The calculator is user-friendly and has an additional pie-chart within the calculations, to enable you to see at a glance how the percentage of the overall staff costs breaks down.
True Cost of an Employee Calculator is similar to the Cost Per Hire Calculator with the addition of live income tax and salary deductions for an employee working in the UK.
The 'True Cost of an Employee' calculator is designed to encompass all possible financial cost factors that are generated when hiring a new member of staff. The calculator is geared towards senior staff and allows for the hire and set up of the staff member in a new office with no existing resource. Whilst not essential for static companies, this enables more flexible companies to cost for the set up and establishment of new offices in new locations.
The 'True Cost of an Employee' calculator was engineered with the support of Sales Force Europe.
In order to simplify first time use, the calculator has been pre-populated with common percentage rates and or minimum costing fees. These figures provide a benchmark for your costing analysis and can be edited as required. We welcome your feedback and suggestions to help further improve the 'True Cost of an Employee' calculator.
The Annual Basic Salary is the amount you pay your member of staff each year before any benefits or benefits in kind are included. i.e. Without any deductions for tax, national insurance, pension schemes, childcare voucher schemes, etc, are taken away and any bonuses, dividends, shares, etc have not been added. It should not be confused with 'gross pay', which would include all money earned for the year.
Annual Bonuses are a great incentive to keep staff on board and encourage loyalty, greater output and commitment. Many companies give an annual monetary bonus, but any form of payment is considered a bonus or 'benefit'. When a gift is given instead of a financial award, it is deemed a 'benefit in kind' and a monetary value must be awarded to the item, to enable tax to be paid on the gift. There are some exceptions though.
Not all of the money a person earns is taxable. Most people have a 'Personal Tax Allowance', which is an amount set during the budget for the year ahead. This amount is exempted from tax deductions. In addition to the basic Personal Tax Allowance, some other groups of people receive additional allowances, such as the 'Blind Persons Allowance'. For more information, please see UK Income Tax Rates and Allowances article.
NIC means National Insurance Contributions, which are paid by both the employer and employee. They are compulsory and called Class 1 contributions. The employee NICs are deducted from their gross pay, so do not cost the company money. They are known as Class 1 Primary Contributions. However the Employer NIC, which is charged at various percentage rates, depending on wages earned is paid by the company. These are called Class 1 Secondary Contributions. You can calculate Employers National Insurance Contributions here and read more on the subject
The true salary cost is the total amount of the basic pay, bonuses and Employer NIC. This is what the company pays out each year for wages, without allowing for any other schemes that an employer may run, such as a pension plan or medical plan. Eg Frank earns a basic salary of £10,000 per annum. He receives an annual bonus of £1,000, meaning that the company has paid a total of £11,000 to Frank. The employer must pay Employer NICs on this cost, amounting to £365.28. Therefore the total or TRUE Salary Cost to the company is £11,365.28 (£10,000 + £1,000 + £365.28).
Company pension schemes are becoming more and more popular and since October 2012, it became compulsory for employers to offer employees a workplace pension scheme. The roll out programme completion for this new initiative is 2018. Some employees do not currently have to opt into the scheme, but employers cannot refuse a person who wishes to join the scheme, even if they are not within the 'eligibility' parameter. The pension programme is morphing, so it can be a minefield of different regulations and considerations. Contributions are paid by the government, employer and employee. Premiums are set at different rates, dependent on several factors.
Private medical insurance is popular is the US and is becoming increasingly popular in the UK. It is one of the 'benefits in kind' an employer can offer. A benefit in kind is an award given by the employer that is not financial, though usually will have some monetary value. Like most things tax wise, it is complicated working out what is eligible to have tax and NIC deductions made and what is exempted. Private (Company) Medical plans can include dental care, ocular needs (eye tests, contact lenses, spectacles, etc) and general health cover (home and abroad).
An employer can elect to give employees shares and some benefits may be realised by the employee, such as tax relief. The company will bear the cost of providing the shares to the employee, but may be eligible for tax relief in some circumstances. There are four approved schemes that allow employees to benefit from relief on tax and NIC. Employers have to complete a forms for HMRC, advising what scheme they run etc. There are strict controls governing this and it is of benefit to liaise closely with an independent accountancy firm or umbrella company for HMRC considerations.
Total Employee Benefits is the total amount of any provision an employer gives to an employee, as a benefit, that is not part of a salary agreement or bonus. This is what the company pays out each year for pensions, medical insurance, company car, shares/equity, etc. E.g. Samantha pays into a pensions plan and the company pays £2,000 annually towards this. In addition there is medical insurance, costing the employer £500 per annum. Samantha doesn't have a company car and no other benefits are received. Therefore the Total Employee benefits are £2,500.
This is one of the unknown/unpredicted costs that a company can face, if not planning a campaign appropriately. Anything that costs money when advertising for staff should be included, such as media methods (hoardings, T.V., radio, telephone, internet, mobile, presentations, etc). You could also add hospitality and meeting costs, for planning the advertising campaign, otherwise place them in the management administration costs. There is a danger that these costs can escalate if not tracked effectively, so it is wise to have a budget cap for advertising and decide exactly what it will cover.
Agency fees are what the company pays to another business to manage a particular aspect of work, in this instance, it refers to the recruitment of staff and forms part of the 'onboarding' costs.
Recruiters costs are what the business pays for individuals to manage the hiring of staff. It can include wage/fee for recruiters, location costs for interviews, stationery, administration, interview time, travel and subsistence, etc.
Employee referral costs are the costs associated with providing a finders fee or recognition reward when an employer recommends a friend etc. who subsequently is hired by the company.
It is important to anticipate and understand what travel costs have been incurred or are likely to be incurred in the future. It can be difficult though. Decide who is eligible to be reimbursed, what rate will be paid and whether there is a cap on the total amount paid. Some travel costs can be subject to tax relief.
Relocation costs are what a business pays to an individual who is required to move home permanently to a new location, in order to accommodate work needs. When considering relocation costs, remember to include the actual physical cost of the move, plus any paid leave and additional benefits, such as contributing to furnishing the new home, storage of furniture, etc.
Management administration costs can include meetings, hospitality, staff to carry out checks, arrange timetable, stationery, etc
Payroll costs are the expenditure a company bears for preparing and distributing pay to staff. It includes net pay and the materials used to calculate that pay, as well as labour costs to complete the payroll work and legislative costs associated with payroll.
Legal costs may include insurances, assurances and legislative requirement costs. When recruiting internationally it is important that you have any contracts checked by a specialist international employment lawyer.
'Onboarding costs' are the total amount of the one off costs associated with hiring a new staff member. On-boarding costs are limited to the hiring process only, they are not ongoing financial commitments like salary or office space costs etc.
UK Office and business space costs can vary substantially dependent on the desired office location.
Communications setup costs include Internet, mobile telephone, FAX and fixed landline telephone costs. A typical UK business setup with contracts would be in the region of £150.00 PCM (Per Calendar Month). A figure of £200.00 PCM or £1,400.00 PA (Per Annum) is used as a benchmark to allow for any site installation costs which can apply on new office setup.
The Line Manager Resource costs are those associated with managing the individual in a traditional hierarchical model. This include HR (Human Resource), Health and Safety, Finance and pastoral care. As a baseline cost, a figure of 10% is recommended.
Total Facilities and other costs are the sum of the office set-up, communications systems and line management. Office set-up is simply the initial member of staff in and initial organisation. Communications systems include telephone, mobiles, faxes, internet, etc.
In order to have an effective workforce, it is essential to have 'knowledgeable in their field' members of staff and therefore wise to have an appropriate training programme. Some training is required by Law, such as Health and Safety (H&S) awareness. Training also includes orientation/induction periods, shadowing, in-house skills updates and external courses, as well as professional qualifications.
The true cost of an employee is the overall amalgamation of everything listed above. It is quite staggering when you take into consideration how much a member of staff can cost during the first year of employment with you. It is essential to maintain a happy workforce to keep stability and drive down recruitment costs, year on year. After the initial year, staff costs should come down, onboarding costs are experienced in the first year only.
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