Determining an Employees cost to a business encompass various categories:

Finding technically qualified people who can function effectively is not an easy task. HR must devote time to make sure that you are hiring personnel as close to perfect as possible. Anything less will be a drag on your business. New personnel may require a medical, must be mentored for several weeks while being trained and put on probation pending a 3 month assessment period.

Base Salary:
Be sure to establish rational over award salary ranges given your companies profitability. The market can create shortages in certain skills. This means that in most cases there could be great salary differentials between existing and new employees. Review of wages and conditions is an important factor in a successful working environment.

Employment on-costs:
Be sure to include costs for Work Cover, Public liability, Product liability, Professional Indemnity, Holiday loading, Sick leave, Payroll Tax and Long service leave component. The costs to this point are typically 1.28 to 1.32 time's base salary range before 9.5% SGL- e.g. the cost range for a ($60,000+9.5%SGL=$65,700)
$65,700/year employee will approximate to $84,000 to $86,500/yr.

Other Considerations:

Work Space:

You need to provide some physical space for the new employee. Obviously the rent per square metre varies and depends on the age and location of the facility. But how many square metres does an employee need? Again this varies but there are some guidelines. Work cubicles are typically 2.5 X 2.5 in size. The overall figure builds to approx 80 square metres per employee when you add in common space etc. Furnishing the space, work cubicles etc will nominally run to $2,500 at a minimum.

Plant & Equipment:
Your employees have to have access to a computer and telephone. A figure of $1,000+ for a computer+$500 on average for access to several thousand paid for licensed software and a nominal $250 initially per telephone on average when you factor in installation. Also to be considered is the periodic expense for upgrades to computer software and communication systems.

Business on costs:
Most businesses need to factor in maternity leave, FBT, Audit and legal fees, Bank funding, Federal and State charges, consumables, Technical library and publications, trade licences Professional association memberships and most importantly, company profit !

Industry "Rule of Thumb approach":
Instead of figuring out each cost component separately you can develop some simple metrics. Engineering businesses in which people are billed on projects on a time and materials basis, you take the employee's base salary and multiply it by ~1.30 to cover employment on cost and benefits. Then multiply that number by ~ 1.60 to cover rent, Plant & equipment, profit etc.

Because most businesses have a proportion of non-billable administration staff, you must multiply the result of the first two multipliers by a further ~ 1.20. For professional engineering consulting business the permanent employee costs about ~ 2.50 times the base salary for each employee (this is an industry standard).

Hiring is always a difficult but most important activity. To hire exactly the individual who meets your every requirement is rare. Delay in hiring and you will have trouble meeting your scheduled requirements, hire too quickly and you expend cash before revenue any productive headway is made.
Consider using independent contractors to cover peak periods if your business does not have too steep a learning curve. It is not unusual for a business to be made up of 80% permanent staff with hourly rate contractors making up the remaining ***20%***

Productive working hours

The productive working time is the residual time after the removal of Public Holidays, sick/carer's leave, annual leave, long service leave allowance etc.. based on a 38 hr working week per 52 week year equals 1976hrs less the non productive hours of 322 = 1654 productive hours / year ( if employee is 100% efficient)

You now can understand the matrix of "on costs" associated with permanent employment. This can help you avoid some really unpleasant, expensive and regrettable decisions.

For your business to be profitable, you must review exactly the cost of running your business, and a significant component of those costs is the REAL cost of an employee.

Hours for the denominator..
for 40hr week = 1741
for 38 hr week = 1654
for 35 hr week = 1523


Comparison Hourly Rate = (Employee Annual Gross Salary + SGL (9.5%)) x 2.5
1654 hours p.a.
80000*1.095*2.5/1654 = $132.41 /hr
/38 hr wk.
and then click "Calculate" !


Hourly Rate


The above illustrates the actual recovery costs required per permanent employee per hour to operate a profitable business

***Contract labour is costed at an hourly rate and is inclusive of all statuary costs both Federal and State so the one hourly rate is significantly cheaper than permanent employment of a similarly credentialed individual.***

This information is general and is designed to give the reader an overview of what costs maybe incurred in the employment of personnel but in no way accounts for all industry types, business sizes and locations.