The Hidden Costs Of Hiring Employees

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In today's presentation we begin a new series on how to hire and manage employees with a look at the hidden costs of hiring employees.

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The Hidden Costs Of Hiring Employees

  1. 1. The hidden expenses of hiring employees by FitSmallBusiness.com
  2. 2. “Hidden” Expenses Are Generally 10% Or More Of Wages
  3. 3. You will also need to pay: •Social Security •Medic Care •Unemployment Insurance These will add up around 10% of their wages, and could even be higher.
  4. 4. If you hire more than 50 full- time employees you will need to provide them health coverage, which can add thousands of dollars per employee per year.
  5. 5. Table Of “Hidden Cost” Of Hiring Employees
  6. 6. Expence Cost in Dollars or Percentage of Wages Maximum Dollar Amount Taxed Per Employee Percentage of Salary for a Worker Earning $28,00 per Year posters Free/ $63 Per Year ----------------- ------------------ Social Security Tax 6.2% $113,700 ( in 2013 ) 6.2% Medicare tax 1.45% Unlimited 1.45% State Unemployment Insurance CA 3.4% NY 3.4% TX 2.7% $7,000 $8,500 $9,000 0.85% 1.03% 0.88% Federal unemployment Insurance Most States 0.6% CA, NY 1.5% $7,000 $7,000 worker compensation Insurance Typically 1% to 2% for office workers ----------------- Typically 1% to 2% for office workers
  7. 7. What are posters? In many lunch rooms or employee only areas, you will see posters detailing employee rights like the minimum wage. They are a requirement by both federal and state government. The Federal Government posters are available here for free. The Labor Law Center will provide you a poster for around $63 per year.
  8. 8. Social Security & Medicare Tax (also know as FICA)
  9. 9. In addition to employees paying these taxes, employers must pay as well.
  10. 10. • Employers must contribute 6.2% of salary / Wages for social security on the first $113,700 paid to an employee (for 2013). • Employers must contribute 1.45% of salary / wages for medical care without limit to de employees salary /wages (for 2013)
  11. 11. What about the extra medicare 0.9% tax for “Obama Care”? “There is no employer match on the 0.9%”, says Chris Hesse, a tax partner with CliftonLarsonAllen in this article.
  12. 12. When do you pay FICA taxes? Depends on the size of your payroll. You need to calculate and make FICA payments to the IRS once per month, or semi-weekly. For more check Jean Murray of About.com article.
  13. 13. Unemployment Insurance
  14. 14. When states use up funds that are set-aside for unemployment benefits, the federal government steps in and loans the state money. This is one of the reasons that employers pay unemployment insurance taxes to both federal and state governments. The unemployment taxes on a federal level are 100% paid for by the employer
  15. 15. While the official federal unemployment tax (FUTA) rate is 0.6%, the reality is the tax is a small fraction of this amount for the following reasons:
  16. 16. • If your company is up to date on your state unemployment taxes, your company receives a credit, reducing the rate to 0.6%
  17. 17. •The tax applies only to the first $7,000 of income per employee. If your company is paying 0.6% and every employee makes at least $7,000 per year, the tax only comes to $42 per year per employee. (For more about this topic click here)
  18. 18. The rates mentioned at the beginning of the presentation are the introductory rates to new employers. Once your company has a history of hiring, the rate will be adjusted. The majority of unemployment taxes get paid to the states.
  19. 19. The tax paid to the state is not limited to the first $7,000. The taxable income amount for most states is $14,000 or less. For more info go here. You will be paying separate payments for FUTA and Unemployment tax, for the state and federal governments. The majority of the unemployment taxes get paid to the states.
  20. 20. Workers Compensation Insurance
  21. 21. Covers claims by employees against a company for job related injuries or illness. Is required in all states except Texas. In most states is sold and underwritten by private companies.
  22. 22. How much does it cost? Is priced as a percentage of payroll. The average is 2%. How ever, depending on the state and type of work, the percentage can be lower or much higher.
  23. 23. In California A clerical worker might have a rate of 1.25%. You may pay $375 per year. A roof installer / repairman might have a rate of 10%. You may pay $4,000 per year.
  24. 24. The insurance company will have the base rates for each employee classification. For more information on how rates are set read this article by Robert Elliot, J.D.
  25. 25. 1) You will need to pay FICA taxes. Unless you have employees making over $100k per year. For small companies this task needs to be paid monthly. Summary
  26. 26. 2) You will need to pay federal and state unemployment tax. At most, the federal option will be $105 per employee. For the state unemployment insurance you will need to apply for it and your rate will be told by the state, which might add around 1% to your employee expenses. This tax is paid quarterly. Summary
  27. 27. 3) You will need to get workers compensation insurance via private insurance company in most states. The rates by profession are set by the state. For office workers, this expense should be less than 2%. Summary
  28. 28. And Finally...
  29. 29. To learn how to be a more successful entrepreneur visit us at....
  30. 30. www.FitsmallBusiness.com (Thanks for watching)
  31. 31. www.FitsmallBusiness.com (Thanks for watching)
  32. 32. www.FitsmallBusiness.com (Thanks for watching)

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