What Are You Spending on HR?

The Indirect Costs of Employees

According to a study commissioned by the US Small Business Administration in 1995, the average cost per employee per year for a firm with fewer than 500 employees is $5,000. This cost includes the impact of all Federal regulatory paperwork and tax requirements placed on a company. While these costs may be “hidden”, in terms of the time your staff spends managing paperwork, make no mistake, they are real. Let’s look at the major cost components:

  1. Labor Accounting and Reporting Costs

    Building and running labor costs reports including departmental or job costing labor reports.

  2. Journal Entries for labor costs, tax withholding, etc.

    Federal, State, and Local Tax Filings
    Regulatory Agency Reporting and Filings

  3. Human Resources Administration Costs

    I-9 Verification
    Background Checks (optional)
    Pre-Employment Testing (optional)
    Recruiting, Advertising, Resume Screening, Interviewing (optional)
    Employee Handbooks
    Performance Appraisals
    Rewards and Recognition Programs (optional)
    Position Descriptions
    Drug-Testing (optional)
    Training (Employee and Managerial)

  4. Benefits Administration Costs

    Plan Acquisition Costs
    Plan Enrollment Reporting and Administration
    Plan Premium Remittance to Insurance Carriers
    Employee Enrollment & Termination Reconciliation with insurance carriers
    Annual Plan Enrollment, ERISA and HIPPA Compliance
    Claims Management

    Each of these cost categories above applies to each type of insurance your company wants to offer including:

    Medical Plans
    Dental Plans
    Long Term Disability
    Short Term Disability
    Accidental Death & Dismemberment
    Life Insurance
    Vision Plan
    401(k)
    IRA
    Employee Assistance Programs
    Flexible Spending Accounts

  5. Payroll Administration Costs

    Employee time collection and reporting
    Payroll errors handling
    Third party inquiries administration for employment confirmations
    Employee Garnishments, Child Support and Tax Levies
    W-4 administration
    W-2 Printing and Reporting

  6. Compliance Costs

    What would your company pay to transfer the risk for non-compliance fines and penalties for HR related employer responsibilities? Until your company has had a fine levied by a government agency, this may not seem to be worthwhile. A single fine can mean significant costs.

This list is not exhaustive and ignores other costs that may face an employer depending on the number of employees and the state in which the employees are located.