How Much Does an Employee Cost?

The cost of labor is usually the biggest cost of doing business; sometimes as high as 70 percent of total business costs. Labor costs...

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The cost of labor is usually the biggest cost of doing business; sometimes as high as 70 percent of total business costs. Labor costs include wages/salary, benefits packages, payroll, office space, hardware, software and state and Federal taxes. They also include administrative expenses and the price of recruiting employees. Business owners should be prepared for these expenses to go up over time.

Business owners benefit when they understand the average cost of their employees and a breakdown of the cost so they can plan for the added expenses of hiring new employees or providing more generous benefits.

Employee cost breakdown

Recruiting and hiring costs:

The average cost to hire a new employee is $4,000 with outliers at $1,000 and $5,000. The lower end is most common for low-level service jobs and the higher end is most common when recruiting top professionals. Businesses with less than 1,000 employees spend less on average for hiring than businesses with more than 1,000 employees. Other factors that affect costs are the industry and geographic region.

The ways a recruiting budget is broken down is different from business to business. The budget should be evaluated annually by comparing what other similar businesses in your area are doing to ensure the business is spending wisely.


In order to attract talented employees, businesses must offer competitive salaries and/or wages. Take a look at what similar businesses in your area are offering for comparable positions. Identify a salary range you’re comfortable with and factor in bonuses or commission for relevant employee positions. According to the Bureau of Labor Statistics, the average wage or salary was $25.03 per employee per hour; this represented 68.3 percent of total employee costs.

Employee benefits:

According to the Bureau of Labor Statistics, benefit costs averaged $11.60 per hour per employee and accounted for 31.7 percent of total employee costs. Common employee benefits include health, dental, vision and mental health insurance, Flexible Savings Accounts (FSA), retirement plans, worker’s compensation, and life and disability insurance. Some businesses offer reimbursement for commuting, relocation expenses, tuition reimbursement and subsidies for child care, gym memberships and cell phones.

Administrative expenses also fall under this category and include business travel, workspace (square footage and furniture), professional organization membership dues, employee certification, and technology systems.


There are many taxes associated with employees including social security (6.2 percent of an employee’s income is the employer’s responsibility), Medicare (1.45 percent of an employee’s income is the employer’s responsibility), Federal and state unemployment, and worker’s compensation.

Most businesses choose to hire an in-house payroll expert or an outside payroll provider to make sure that they are in compliance.

Partnering with Makai HR

Not excited about managing the costs of an employee? That’s okay; we’ve got you covered through HR outsourcing! When you partner with Makai HR you can get on with the business you are trying to grow while we take care of your employee needs from payroll to taxes, health insurance/benefits and worker’s compensation. You also gain peace of mind that you are in compliance with all of Hawaii’s employer laws (if you’ve ever looked you know that the list is very long). When choosing a PEO to partner with, there are many things to consider including cost, services and technology solutions.

With the cost of doing business in Hawaii at record highs, we know how important it is to keep labor costs in line with revenue. Our plans are priced competitively and include value-added services like time-in/time-out systems. Our three tiers of PEO service plans are tailored to the size of your business and specific needs. We offer a 100% paperless solution which means that your employees can manage their needs through a computer, tablet or phone. We can truly improve your employees work benefits while freeing you up to run your business.

What are you waiting for? Companies who partner with a PEO benefit from 7-9% faster growth, 10-14% lower employee turnover; and they are 50% less likely to go out of business. Contact us today to get started!

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