When employing new staff there are many hidden costs that are not always factored in. We have provided a case study below to ensure you have taken all of these areas into account.
- Base Salary. This is normally quoted as the base excluding any oncosts such as superannuation. For our example we will use a base of $50,000.
- Superannuation. The employer must pay 9% superannuation for all employees earning more than $450 in a calender month. On a base of $50,000 this would equate to $4,500.
- Annual Leave is normally 4 weeks per year. Remember that you are therefore paying the base of $50,000 for only 48 weeks work per year. To get the proper annualised cost of employment you need to include the annual leave cost at 7.69% (4/52). In our example this is $3,846.
- Public Holidays. The are usually 10 public holidays in Australia each year. This is another 3.85% (2/52) to add to the total cost. This is $1,925 for our case study.
- Sick Leave. Most awards allow for 10 days sick leave per annum so add another 3.85% at $1,925.
- Workers Compensation Insurance. This can vary broadly depending on the risk of the industry. The rate is fixed each year by statute and can not be negotiated. We have clients that pay up to 15% of the total of their annual wages. For our example, let’s use 5%, so that’s another $2,500 to our employment costs.
- Payroll Tax. This is a state government tax that is levied once your annual payroll (including super) exceeds a certain threshold. The rate and threshold varies slightly for each state but we will use NSW for our example. The threshold is $600,000 and the rate is 6%. Remember, you may not exceed this threshold now but if you’re planning on expansion, this should be built into your rates for when you exceed it in the future. In our example this amounts to $3,000.
- Recruitment. The average cost recruiting a base-grade employee is around $5,000. This includes recruitment costs, down-time and training. We’ll assume your employee stays for 2 years so the average cost is $2,500 pa.
So the cost of employing someone on a base of $50,000 pa is actually $71,196. This is an extra 42% to their base salary.
While this example applies to all aspects of employment within your company, it demonstrates why it is worth looking at areas within your company which may be suited to outsourcing to a specialist provider. One of these areas is bookkeeping services!