We all know that one of the biggest expenses in any business is the cost of employees. In our field, hourly wages are much more common than salaries. But either way, we tend to think of the rate of pay as the total cost of an employee.
It is common to add 25 percent to cover payroll expenses above and beyond the actual pay rate. So a $20 an hour rate is figured at $25. The additional $5 is supposed to cover any local, state and federal taxes the employer is expected to pay. It is also supposed to cover paid days off, sick leave, vacations, etc.
We also need to factor in break times which are usually absorbed by the employer and lunch time which may or may not be. But we sometimes overlook things like the fact that the whole shop comes to a standstill during breaks, even though the cost of doing business clock keeps ticking right on through the breaks.
I have found that 25 percent is really not sufficient to cover the actual costs which are escalating constantly as pay rates rise along with the cost of everything else. I think it wiser to use 50 percent. So a $20 an hour employee should be figured at $30 an hour, not twenty five.
Seems high but if you do the math, you will see that it is much closer to reality.