Ask SCORE: How much does it cost to hire an employee?

by Joseph G. Hadzima Jr.

Employment costs fall into several broad categories:

Recruiting Expenses.

Finding technically qualified people who can function effectively in a rapidly growing start up venture is not easy task. In an earlier column we discussed the economic alternatives for head hunting. For this column it suffices for me to remind you to be sure to devote the time to make sure that your hires are as close to perfect “10s” as possible. Anything less will be a drag on your business.

Basic Salary.

Basic salaries vary all over the place depending on the industry and a variety of other factors. There are data that can help you calibrate an appropriate base salary. For example, the Massachusetts Software Council puts out an annual Compensation Survey and there are similar publications in other industries. Be sure to establish rational salary ranges given your growth plans. This means that in most cases there should not be great salary differentials between early hires and later employees- any “risk component” of being an early hire should be made up in the equity compensation component. 

Employment Taxes.

In preparing your personnel budget be sure to include allowances for Social Security/FICA (currently 6.2% on the first $90,000 of salary – http://www.ssa.gov), Unemployment/FUTA (6.2% on $7,000 of salary – http://workforcesecurity.doleta.gov/unemploy/uitaxtopic.asp) and Medicare (1.45% with no salary cap – http://www.ssa.gov). Workmen’s compensation premiums will depend on the category of your employee, with clerical at about 0.3% of salary and manufacturing at 7.5%.

Other categories include: Benefits, Space, Other Equipment, and Other Approaches.

Read more here.

DISCLAIMER: This column is designed to give the reader an overview of a topic and is not intended to constitute legal advice as to any particular fact situation. In addition, laws and their interpretations change over time and the contents of this column may not reflect these changes. The reader is advised to consult competent legal counsel as to his or her particular situation.

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