Personnel Costs | Formula, Procedure, Method

Personal Cost more than they earn every month. Even far more. The speech is not just about the employer contributions that have to be paid month after month in addition to the gross salary, but also about the many different additional costs that accrue day after day. However, employers do not always have these in mind when it comes to calculating actual staff costs. But they should, in order to calculate economically.

What is the cost of staffing?

Gross salary, statutory social security contributions, holiday and Christmas bonuses, costs for further education, downtime, or the creation of a job. Employees often do not realize how many items can be subsumed under the actual personnel costs of an employee.

But exactly these factors should consider employers from the beginning. Only if they determine the full amount of staff costs can they determine whether they can afford the employment of new employees at all? But which positions have to be considered exactly in order to be able to calculate the personnel costs completely?

Profitability analysis: What are direct and indirect personnel costs?

Personnel Costs – Formula, Procedure, Method

The calculation of personnel costs differentiates between direct and indirect factors. Each employee should know about both.

The direct personnel costs include:

  • The monthly gross salary for the employee
  • Monthly deductions for pension insurance
  • Health insurance monthly deductions
  • Monthly deductions for unemployment insurance
  • Long-term care insurance monthly deductions
  • Monthly levies for continued payment of salary and bankruptcy money
  • Monthly contributions to the employers’ liability insurance association
  • holiday pay
  • Christmas bonus
  • 13th monthly salary
  • bonuses
  • Monthly collective or voluntary social benefits: family allowances, wealth creation, old-age provision, staff discounts, reduced employer loans
  • Continued pay in case of illness
  • Expenses for education, training, and further education
  • Travel and entertainment costs

Indirect personnel costs include factors such as:

  • Workplace equipment with office furniture, computer, telephone
  • Possibly: company car
  • Maybe: laptop
  • Possibly: mobile phone
  • Office rents and utilities
  • Cost of office supplies
  • Possibly: costs for gifts or benefits
  • Cost of recruiting an employee

How do you calculate the personnel costs?

If the individual cost factors are known that unites an employee, the question arises as to how the personnel costs for this and each other can be calculated to a fairly exact degree. To find out quickly and easily, it is sufficient to set the total costs incurred in relation to the annual gross salary of this employee.

The following example illustrates how to do this: Assume that the gross income of an employee is $74,170 per annum, and the total cost to the employee is $126,090. This includes all direct and indirect personnel costs incurred by him. As a result, actual personnel costs are 1.7 times higher than the gross annual salary.

This factor is the same for every employee. This means that every new employee can use a simple formula to calculate what costs them each year. In this case:

The gross annual fee x 1.7 = actual personnel costs

Incidentally, for a worker, only the smallest part of this sum is paid, as illustrated by the following example calculation with a career starter who draws a monthly gross amount of $2,282. The total costs on the employer side are the calculated factor of $3,880 per month. The childless and legally insured employees themselves, after deduction of all social insurance and taxes, but only about $1,460 on the account.

When are they really economical?

Given all these numbers, facts, and figures, employers are quick to ask the question of the profitability of a worker. Because only if this makes a contribution to the company profit, which goes beyond the own personnel costs that are incurred for him, it is worthwhile for the enterprise to employ him. Otherwise, it makes losses from a business point of view. A qualified and experienced strategy consultancy helps with the economic efficiency analysis.

Especially since every employer wants to keep his employees even if, for example, unforeseen business interruptions occur. To have a buffer for such times of crisis, employees in good times must, so to speak, “pre-earn”. Only then can the employer continue to employ them in economically difficult times.

Save staff costs in difficult economic times

But how much does the individual employee have to generate so that he is “profitable” for a company? Again, as is often the case, there is a rule of thumb. In the service industry, every employee assumes to earn twice the staff costs that the employer spends on him. In production, craft, or trading companies, the same basis of calculation applies. But also consume additional costs for materials or goods.

If the profitability analysis shows that this goal can not be achieved, there are various ways for employers to reduce their personnel costs. For example, by eliminating free perks such as daily fruit, coffee, or water, discounted canteen visits, and the like. In times of crisis, this is often a proven way for companies to save costs while avoiding layoffs. Pin It

Alternatives to permanent employees

But there are also alternative forms of employment that employers can envisage: working with freelancers or so-called freelancers, for example. As a self-employed person, no employer shares have to be paid for them – and there is no obligation to continue paying wages in the event of vacation or illness.

But beware: Legal is only if the freelancer has multiple clients and does not generate most of his income with just one employer. Then this fulfills the criterion of bogus self-employment. And this is punishable.

For the client, who is then actually an employer, the bad consequences: For example, employer and employee shares have to be paid later to social security. That can drive smaller companies to ruin. Here you should be quite sure as an employer of his case and check whether it is a freelancer really a self-employed with a larger number of clients.

Integration grant from the Federal Employment Agency

Conclusion: Any employer who intends to hire new employees must aware in addition to the agreed gross salary. Because it not only rises the classic non-wage labor cost also rises many indirect cost factors. The actual personnel costs are therefore many times over.

In order for the hiring of an employee in business terms is flawless and does not become a cost trap, each wage must be calculated very precisely. This calculation results in the salary negotiation also an upper limit, which a company can pay, in order to move from a business point of view still in the “green area”.