Employees can cost a business 18-26% more on top of their base salary in taxes and benefits
Last January 31st, employers across the U.S. have distributed their employees’ W-2 form which states their wages and tax withholding. What those W-2 forms don’t show are the employer’s contribution towards taxes and benefits that they pay on top of their employees’ salaries.
So with all those added factors, how much does an employee truly cost?
An article from CNN Money said that with taxes and benefits, the overall cost of an employee is typically 18-26% more than the worker’s base salary.
In California, businesses have more employer tax responsibilities. It ranked 49 out of 50 in the Tax Foundation’s State Business Tax Climate Index based on its complex and high employer tax rates.
Gusto, an online payroll administration company, itemized the following taxes that California employers are responsible for per employee:
- Social Security: Social Security is a federal insurance program that provides benefits to retired employees and the disabled. Employers must pay 2% of taxable wages on the first $132,900. In some places, they might see this referred to as “FICA” or the “Federal Insurance Contributions Act,” and that refers to the combination of Social Security and Medicare.
- Medicare: Medicare is a federal system of health insurance for people over 65 and younger people with disabilities. Employers must pay 1.45% on all of an employee’s wages.
- Federal Unemployment (FUTA): The Department of Labor oversees state programs that provide unemployment benefits to workers who become unemployed because of an incident out of their control (like a location closing) and meet certain other eligibility requirements. FUTA is 6% on the first $7,000 of an employee’s wages. However, most California employers are expected to pay 3% in 2019 because they also pay state unemployment, which is worth a 3% credit against their FUTA.
- California Unemployment (SUTA): A state-sponsored insurance program, California provides benefits to unemployed workers, the disabled, and those on paid family leave. California SUTA is 1.5-8.2% on the first $7,000 of an employee’s wages. This rate is given by the state and can be influenced by how long they’ve been in business, the number of employees they have, the amount of unemployment benefits that have been charged to their account, as well as other factors.
- Employment Training Tax (ETT): The ETT provides funds to train employees in targeted industries. Employers must pay an extra 0.1% on the first $7,000 of wages per year.
Image Credit: Gusto.com
In this infographic made by Gusto’s, an employee with a salary of $65,000 can cost an additional $5,427.50 in federal and state taxes. That’s roughly 8% on top of his/her annual salary.
- Medical Insurance: According to the Kaiser Family Foundation, California employers on average cover 77% of their employees’ medical insurance premiums. The average annual employer contribution towards single employees’ premium was $4,862 and $13,371 for family premiums. This typically accounts for 8% on top of the employees’ wages.
- Retirement Plan or 401(k): According to the 2018 release of Plan Sponsor Council of America (PSCA) 401(k) Report, the average employer contribution towards a participating employee’s retirement plan is 4.8% of their salary.
- Paid Leave: In the Bureau of Labor Statistics (BLS) Employer Cost For Employee Compensation Report, paid vacation, sick time or time off can cost employers on average an additional 7.2% on top of the workers’ salary.
Overall, an employee brought in at $65,000 can cost an additional $17,550 in taxes and benefits, putting the total cost at $82,550 annually. This amount doesn’t count the added cost of time and money that comes with sourcing and interviewing for this would-be employee, as well as the ongoing administration of his/her wages, tax withholding and benefits.
Partnering with an experienced staffing firm can help relieve some of the costs that comes with being an employer. Transferring the responsibilities of recruiting, payroll and benefits administration can help businesses save more money and focus more on building growth. To learn more about these services, call SoloPoint Solutions at (408) 246-5945 or (714) 708-3639, or contact us today: