Miscellaneous
Total compensation statements show employees how much you’re actually investing in them. Today I want to talk to you about your employees total compensation. No, total compensation is not simply the employees annual salary. It is more than that. It refers to the total cost of employing an individual. Why is this important? I believe this to be important on two levels. It’s important for employers to have an idea of just how much it costs to employ someone. This may help you make more informed hiring and firing decisions. It’s also important that the employee understands that their compensation is more than just what their paycheck shows every payday. According to a study conducted by Human Resource firm PayScale, nearly 40% of all businesses prepare total compensation reports for their employees. Total Compensation: Total compensation can be defined as the employee’s cash wage plus any non-cash benefits that are paid on behalf of the employee by their employer. A lot of times these non-cash benefits are never seen by the employee, therefore they have no idea that you the employer are even paying them. Or maybe they have an idea, but it’s never discussed with them so they may not really see it as a benefit for them. Let’s go over some of the non-cash items that you are most likely to be contributing on behalf of your employees. Health Insurance is going to be one of the largest, if not the largest non-cash value that your employees receive. There are also employer paid matching retirement contributions, and let’s not forget the employer paid portion of payroll taxes. These will be the most common items factored into a total compensation report that you may prepare. Your organization may provide additional non-cash benefits such as Flexible Spending Accounts, life insurance, disability insurance or any other benefit you may provide that was not mentioned. Costs such as equipment or workplace amenities would not be included in a typical total compensation report. Let’s put a quick example together. Let’s say you hire a new employee at $50,000 per year annual salary. As previously stated, this number simply represents the gross pay, before taxes, that your employee will be paid in cash. The employees annual salary is obviously going to be the lions share of the total compensation report. Then if you factor in the FICA taxes which are 15.3%, 7.65% of which is paid by you the employer. On $50,000, that number is $3,825. So you can see already it’s going to cost you at least $53,825 to pay your employee $50,000. Let’s say you have a medical plan where the company pays 100% for the employee only, family coverage is extra and would be paid by the employee. For the purpose of our example, the employee only coverage is just over $416 per month. This adds up to around $5000 for the year. Lets throw in a retirement plan where the employer matches 25% on the first 4% that the employee contributes. In this example the employer matching contribution would be $500. So that’s a pretty basic benefit offering and if we add all that up we get a total compensation report that shows us that it will take $59,325 to pay this employee an annual salary of $50,000 and provide a basic benefit offering. In reality, it will actually cost you a little bit more than this because we didn’t factor in unemployment taxes and any other employer paid taxes that may be due at a state level. These items are typically not included in a total compensation report. You can tailor the compensation report to your needs. You can decide what to include and what not to include in the...