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Mar 5David Kirkup

What is the true cost of an employee?

Mar 5David Kirkup

Hidden employment costs

As companies start to once again think about maybe, possibly, perhaps starting to hire employees – it makes excellent sense to really understand the true cost of hiring.  Whether you are looking for additional assembly line workers, software consultants that will be re-billed out to clients, or high level executive positions the true cost of an employee can be much, much higher than the sticker price.  When comparing the cost of hiring vs temporary or outsourced workers it is essential to use the full loaded employee cost as your basis for comparison. The additional “hidden”costs will vary by company, but are always significant.  Think benefits, insurance, computers, phones, office space, lunches, taxes, training, travel, and everything else that goes into an employee.

Trend to outsourcing

A leading trend for growing Georgia companies in the next year will be increased use of outsourced employees at all levels of the business.  Although this trend will not help ease recession level unemployment figures, it is emerging as a structural trend across industry.  The reasons why more companies are considering outsourcing and subcontracting are many.  Cost is a significant reason – with in-house employees carrying overhead burdens of as much as 40-60% or more. What about all the other costs associated with hiring full-time employees?  When employees are “on the clock” what are you really paying for?  Will you experience notorious time-wasters such as frequent socializing, running personal errands on company time, prolonged Web surfing, late to arrive/early to leave, personal phone calls and emails.  How do calculate this cost into the overhead burden?

Professional Service Firms

For software consultants, law firms, engineering and architect firms the fully loaded employee cost is very important.  How else can you ensure that you are billing the true cost of your business to clients and making a satisfactory return. Determining an effective overhead load rate is the first step in making sure that a professional  service firm is profitable.

Professional Advisors

While many Atlanta companies have hired part-time and temporary workers at the lower experience levels, the trend has now expanded to “C” level employees.  Many companies would benefit from the expertise of a seasoned financial manager to help build cash flow and profitability and position the company for growth and value.  A full time CFO might cost $150K + in base salary with overhead and bonus pushing their cost way above $200K a year.  In contrast a part-time CFO might be hired on a weekly, or monthly basis for little more than $12 – $25K.  The same logic applies to other expertise that is required consistently but not 24/7.

The world has changed with profound effects for future employment levels.  The just in time model of purchasing expertise as needed is more prevalent and useful to growth companies.  It is important to compare alternatives correctly.  While a consultants hourly rate may seem “high”, once you compare that to the year round cost of an employee you may find it is a bargain.  Add to that the benefits a contract employee can bring such as wider experience, no office politics or gossip, no benefits, a can do attitude and a highly professional approach.

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