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.