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How do you figure out the amount for benefits per employee?

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  • How do you figure out the amount for benefits per employee?

    I was just curious if someone could tell me or point me in the right direction where I could find the figures that I need for benefits per employee?

    I called around to find out what the average wage was in my area, is there another way to do it? A listing somewhere or something?

    Also, if you could list what benefits you offer to your employees, when they usually go into effect after hiring, and does anyone here offer stock options?

    I appreciate any information that you can give me for this. My guess is that I need to sit down with a CPA after I create a benefits package. Am I right?

    Ray

  • #2
    Originally posted by mbmx13
    I was just curious if someone could tell me or point me in the right direction where I could find the figures that I need for benefits per employee?

    I called around to find out what the average wage was in my area, is there another way to do it? A listing somewhere or something?

    Also, if you could list what benefits you offer to your employees, when they usually go into effect after hiring, and does anyone here offer stock options?

    I appreciate any information that you can give me for this. My guess is that I need to sit down with a CPA after I create a benefits package. Am I right?

    Ray
    There are really four distinct issues here: wages, payroll taxes, benefits and expenses.

    WAGE INFORMATION: Check out the Bureau of Labor Statistics.

    This page provides you with links to wage data by area, by industry, by position, etc:
    Wage Data By Area and Occupation

    This BLS page has links to lots of different reports about not only wages, but also benefits, including breakdowns by size of company, etc.:
    BLS Wage and Benefit Reports

    Crawl around the BLS site - you're almost certain to find useful information.

    Wage information is also available from job applicants themselves as to what they're currently making. (You'll be able to spot the liar, don't worry.) However, it's easy to wind up comparing apples to oranges from this information because one applicant's current wages might include a shift premium, a "seniority" component, etc.

    PAYROLL TAXES: The only things beyond wages that you are REQUIRED to pay have to do with your half of the employees Social Security and Medicare, of which your contribution is around 7.5% of their wages, and the Federal and State unemployment tax (called FUTA and SUTA, respectively).

    The FUTA rate is 6.2 %, but you can take a credit of up to 5.4% against FUTA for SUTA taxes that you pay. If you are eligible for the maximum SUTA credit your FUTA rate will be 0.8%. The wage base for FUTA is $7,000. You stop paying FUTA for each employee once his or her wages exceed $7,000 for the year. You will need to check with your state about SUTA tax rates and the wage base. Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. When your business is new, your SUTA tax rate starts at the maximum and declines if you build a history of few claims. For further information on FUTA, etc. check out IRS publication 15, Circular E. For state information, contact your state's taxation agency.

    BENEFITS: Benefits are not the same thing as payroll taxes. Benefits are optional "extras" like health insurance, dental insurance, paid vacations, paid holidays, education reimbursements, 401K plans, profit-sharing, etc. Such benefits can cost the company 15 to 25% in addition to the employee's wage OR MORE, and for the smallest companies the cost of benefits - health insurance, in particular - is prohibitive.

    Most smaller companies, especially startups, don't offer benefits except perhaps paid holidays. Vacation is usually the next benefit they add. Naturally, the lack of benefits puts the small company at a disadvantage when competing for employees against companies that do offer benefits. One answer to this is to add a "cash premium" to the wage they offer which is smaller than what benefits would cost them, but will attract some employees who would rather have the cash than the benefits anyway, perhaps because they have health coverage through a spouse, etc.

    So...suppose the going wage paid by larger companies for a security officer in your area is $15 plus benefits. You don't offer benefits, but you pay $17 instead. This "$2 premium" costs you a lot less than benefits would cost, and it allows you to compete for the officer who has health benefits through his spouse's work, or who for other reasons would rather have the higher wage than the benefits.

    EXPENSES: Companies differ in what they reimburse the employee in terms of out-of-pocket expenses. For instance, some companies pay for firearms training and qualification while other companies require officers to pay for this on their own. Some companies pay for uniform cleaning, others do not. Some companies pay mileage for employees under certain circumstances.

    Typically, these reimbursements are NOT WAGES, and no additional payroll taxes, etc. are calculated on these - but there are some "gotchas" in this area as to whether certain kinds of reimbursements might be viewed by the IRS as taxable income to your employee (and hence, subject to payroll taxes from you).

    Your own suggestion about getting CPA advice is correct, but do so FIRST, not after you've made these decisions. You need his advice anyway regarding many matters involved in setting up your business, and he can give you up-to-the-minute advice on the issue of payroll taxes.

    SUMMARY:
    1. Get wage information from BLS sources and from job applicants.

    2. Get up-to-the-minute information about the "extra" you will have to kick in for employee's SS, Medicare, FUTA and SUTA. Source of info include your CPA, the IRS website and your state taxation agency.

    3. Forget about benefits right now, other than perhaps paid holidays (and limit these!). If you have trouble competing with companies offering benefits, consider adding a "cash premium" to sweeten the wage you're paying over the average wage offered by companies that do have benefits. This "premium" will still cost you much less than the cost of benefits.

    4. Be guided by "custom" (and your CPA) regarding reimbursing certain employee expenses. Be sure these are not considered "income" to your employee. It is not unreasonable to expect an employee to make a certain investment in his own career, such as investing in a firearm or even in training, but if an employee incurs an expense that is clearly to your company's benefit more than it is to HIM or his career, I would suggest you reimburse that expense (provided you have pre-approved and/or required the expenditure).

    Hope this helps!
    Last edited by SecTrainer; 03-24-2007, 10:23 AM.
    "Every betrayal begins with trust." - Brian Jacques

    "I can't predict the future, but I know that it'll be very weird." - Anonymous

    "There is nothing new under the sun." - Ecclesiastes 1:9

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