New business owners quickly discover how imperative it is to calculate their service company labor and overhead rates in order to keep their finances healthy. Every industry needs to take these numbers into consideration so they can break down costs and ensure that they are making a profit.
In order to do so, you will need to determine the cost of each employee. However, this does not just mean the sum amount of what you are paying them yearly, there is more you need to factor in. It might seem like their pay is the most important number, but the extra stuff adds up quick. Don’t make the common mistake of looking over those ‘little’ extra costs. Keep reading for everything that needs to be factored in when using an employee cost calculator.
CALCULATING OVERHEAD COST PER EMPLOYEE
Many companies often exclude the cost of labor from their direct service overhead and final cost of production. However, labor costs tend to contribute a great deal to the expenses of each business. Calculating the overhead cost per employee is not overly complicated, you just need to factor in the cost of each employee’s:
- Salary/hourly rate.
- Payroll taxes.
- Fringe benefits.
- The supplies and expenses required for the employee to accomplish their job.
- Any cost from equipment used by the employee.
FACTOR IN EVERYTHING
As mentioned above, every little cost counts. Guessing a loose estimate of what each employee costs could lead a company to some serious money troubles. In addition to the general expenses presented in the first list, make sure to also include the following, if they do apply to any of your employees:
- Paid time off.
- Retirement and/or union benefits.
- Training and/or any extra time spent working on enhancing the skills of the employee.
- Any equipment that has been damaged by the employee.
- Errors made by the employee that has caused production to move slower or possible loss in customers.
- How much supervision and support needed by the employee.
With this information, you can now calculate the true cost for each employee.
CONCERNED ABOUT YOUR LABOR COSTS?
Many companies struggle to keep their labor costs low enough so they can grow. Fortunately, there are solutions for this, it just requires some adjustments in the way that the company is staffed. With the assistance of a staffing company, a business does not have to cover the expenses of screening, testing, interviewing and reference checking. This will allow current staff to continue focusing on more critical activities and reduce the time to hire. In addition, they can provide you with capable temporary employees who can come in when you anticipate a peak in business.
Once that peak is over, you will not have to continue to find hours for them and watch your labor costs fly through the roof. Our team will work with you to ensure that you are adequately staffed and not wasting time and money attempting to do so. Want to hear more about how Alternative Staffing can help reduce your labor costs?