What is the biggest asset in your organisation? In this article, we will be discussing more on employee cost.
When you get asked this question, you probably think of tangible assets like machinery or building properties. But if you’re a profit-first business, you would know that above anything else. Your most significant asset is not a “what” but rather a “who.” Should I mention employee cost?
Behind every successful person in business is a highly-competent team of amazing people. Employees make or break a company; they are the foundation upon which your company is built. Without the help of excellent and capable employees, your business might end up digging its own grave. This is the reason why your greatest asset is not material things – it’s the people running the show in the background.
But when you’re just starting, wanting to employ the right help is easier said than done. To hire amazing people who know how to deliver the right results, you have to be willing to pay the price. Good help doesn’t come cheap, but it’s worth price spending.
All this talk about employee cost may have gotten you curious already. Just how much, exactly, does it cost to employ someone? Let’s find out.
Employee Cost: The Hidden Costs Of Hiring
In exchange for great help, let’s say you’re willing to invest above the UK’s minimum real living wage. Offering a higher basic rate would mean paying more than £9 per hour (£10.55 in London) or around £16,380 per annum (£19,201 in London) if you are to follow regular working hours and days (35-hour workweek). Before you jump the gun and go offering £25,000 per year out of goodwill and appreciation for your stellar new hire, you have to understand that there are other costs that you need to cover – not just the basic rate.
The basic pay is the guaranteed amount your new employee will be receiving per month. It is a fixed salary that the worker and the company have agreed upon and is the amount that appears on the employment contract. But aside from the basic pay, there are other payables that you have to take into consideration. Here they are below:
National Insurance Contributions (NICs)
If you’re going to be paying your newly hired employee an annual salary above the Secondary Threshold (£8,788 for the year 2020-21), then you are required as an employer to pay 13.8 per cent of the salary payment to NIC. This amount, however, may be mitigated should your company be eligible to claim Employment Allowance.
Tools & Equipment
Another cost that you have to anticipate on top of paying the basic pay is the cost of procuring work equipment for the new hire. If the employee is to sit in an office-based job, he/she would need his/her computer, telephone, and other office supplies that are vital to the delivery of his/her role in the company. You also have to consider the installation of additional furniture like a desk and an office chair.
Offering a full-time post in the UK requires you to enrol your new employee on a pension plan. It is called an auto-enrolment pension because it goes without saying. For the tax year 2019-20, the minimum contribution is at 8 per cent, with 3 per cent coming from the employer’s share and the remaining 5 per cent paid off by the employee.
The following benefits are also due to the employee as prescribed by labour laws:
- Holiday Top-ups
- Vacation Leaves
- Sick Leaves
Final Thoughts on Employee Cost
Before you finalise the rate you offer, you have to consider all these factors for your employee cost. Giving this some thought will help you determine the best way to hire help. If you can’t afford to hire a full team directly, you may also want to consider outsourcing work. Get in touch with us, and we can help you figure out what kind of employment setup would work best for your company. And don’t worry about the costs, we’ll give you some advice on the house, in this case, your employee cost!