Payments to employees are mostly based on gross salaries, with taxes deducted to reach the net amount the person receives. In many countries there are also several payroll components added “on top” of the gross salary and paid to the authorities.
When it comes to establishing how much each hour spent working costs, even more factors need to be taken into account to first understand the number of hours in question.
For an assessment that aims to establish these figures over a longer term, the calculation is even more complex.
To help these calculations and a comparison with outsourcing on an hourly basis, we have created a cost calculator.
Real costs and real hours
The gross salary is the most frequently quoted metric by the various salary comparison websites such as indeed.com and glassdoor.com. It serves both as a base for the net payouts received by the employee, and also as the base for the various additional taxes and contributions to be paid by the employer “behind the scenes”.
These added items differ jurisdiction by jurisdiction, both in their amounts and the complexity of calculating them. Nevertheless, they increase the incurred costs.
Fewer workdays
Employees are entitled to paid holidays of about month or more a year, reducing the actual number of working days to around 90%.
Public holidays mean that, with some exceptions such as restaurants, the entire company is closed. Depending on country or region, this is an additional 5 to 10 weekdays each year.
These two types of holidays can add up to 30 working days or more. When calculating the actual cost of hours worked, the salary and its taxes and contributions are applied to this, smaller, number of working days.
Non-productive work hours
While at work, none of us spends all hours working. We all need occasional breaks and some chat, and idle time can also arise when waiting on a meeting participant or just rebooting the computer. In other words, the designated working hours are not all spent working.
While our calculator allows taking this into account, we are not considering uneven performance throughout the day.
An even more comprehensive view on costs
Office and equipment
Maintaining your office, including its rent and utilities might add a notable percentage to the costs. In some jurisdiction, communing costs might need to be covered in part or in full. It is also possible that employee home office costs must be compensated.
The most basic office equipment enabling meaningful work includes furniture, computers, and software. Over the course of several years, these need to be replaced While furniture might be used for well over a decade, this is usually not true for computers, not to mention software.
While these costs can be significant, our calculator does not take them into account, because these factors can be really diverse. As a rule of thumb, 10-15% can be added to the salary costs to account for them.
Other cost items
Additional potential costs can include paid sick leave, the costs of recruitment (such as advertising) and dismissal (with all its legal expenses and severance pays), and other items, such as the cost of payroll processing.
Our employee cost calculator
To help better understand the hourly cost of your employees, we created a simple employee cost calculator. It uses as input salary data, simple percentages for taxes, and a few time-related numbers to give you:
- Gross annual salary cost
- Average number of hours worked per year
- Average cost of an hour worked
You can find our calculator here. It does not record any of the data provided on our servers.
