Every business has to offer great value and competitive rates to its customers in order to thrive. However, at the same time, it’s imperative that the business generates enough cash to cover all operational expenses. One of the largest costs that businesses incur is labor costs.
In labor-heavy industries, labor costs can even take up two-thirds of a business’s total annual budget. Having established this, it’s important to understand each aspect of these costs and how they’re calculated. If certain factors are overlooked while calculating the true labor cost, it can lead to inaccurate estimates.
Calculate the additional costs your employees will incur along with their wages
This includes the tax revenue amount. You should also check for tax amounts related to Medicare and Social Security that your employees are eligible for through FICA (Federal Insurance Contributions Tax).
Overestimating taxes is far better than underestimating them, since the latter could cause a shortfall. It’s best to navigate tricky payroll taxes using an accountant’s help.
Research health insurance plans
Health insurance plans differ greatly from provider to provider, but all of them require contributions by the company itself. It’s best to hire a staffing expert who can recommend a health insurance plan that takes employees’ needs into account while also taking your overall budget into consideration.
Review all your costs
All businesses require equipment and offices that need to be run at optimal capacity and conditions. After you’ve accounted for insurance, taxes, equipment and building maintenance, and any other expenses you’ll incur during operations, you’ll have accounted for your company’s total overhead costs.
Gross wages
You have to calculate the gross wages that each employee is to be paid. While calculating gross wages, remember to account for sick leaves and paid vacation days.
Each employee’s gross wage needs to be added to their other expenses and then divided by the total hours the employee will work for each year.
Overlooked aspects of labor costs
Some labor costs can be difficult to accurately estimate, since businesses have to account for both variable and fixed costs. It’s important to keep the following rules of thumb in mind:
- Salaried, regular employees are responsible for most direct costs.
- Interns and temporary employees who are hired during times of need contribute to indirect costs.
- If workers need supervision, this factors into the total labor cost.
If your company requires employees to wear uniforms or hold special licenses to operate particular machinery, these factors also affect labor costs.
It’s tricky to account for all the hidden costs that come with running a business. Hiring a staffing expert will ensure that all ground is covered when it comes to true labor cost.
Superior Staffing is one of the top staffing agencies NJ. We make sure to connect companies with talented individuals looking for job opportunities in Paterson, NJ. Contact us today to help your company find the best person for the job.
Leave A Comment