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If you take everything into account (mandatory insurance, etc.), how much do employee and employer's representations diverge about employee's cost? For example, you may think a 5K increase in your salary is really 5K more for the employer, which I suspect is wrong. I read that it's nothing compared to the total cost of an employee, but is it true?

Thanks a lot

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    what country is this in relation to? the mention of "mandator insurance" is a little unclear, I think – warren Jun 26 '14 at 15:04
  • @warren - The US now has a mandatory health insurance law. I would guess this is US – Chad Jun 26 '14 at 16:08
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    @Chad - lots of countries have mandatory insurance laws (workers' comp, health, etc) – warren Jun 26 '14 at 19:17
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Many companies that contract their employees use a multiplier of 2x when relating what they need to charge compared to what they can pay. If the employee makes 50K a year, then they have to charge $50 dollars an hour. Yes that math is correct.

That difference covers the cost of benefits (both required and optional), overhead for management and support staff, plus equipment and utilities, and of course profit.

  • Some of these costs are fixed: a family health policy from insurance company x is the same for a minimum wage worker, and the CEO.
  • Some are based on a percentage of salary, others are a percentage of salary with a ceiling: social security and medicare.

These multipliers are used contract wide or maybe even company wide so they are averages. It will cost the company in true dollars more than just the bump in salary, but the last dollar is not as expensive as the first dollar. This is why having a team split 40 hours of overtime a week is probably cheaper than hiring a new employee.

  • yeah both the fixed costs and percentage costs become more and more negligible at salaries above a national average. its a bell curve and I don't think the OP's 100k salary is anywhere near twice as expensive regarding the additional overhead – CQM Jun 27 '14 at 0:11
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No, not relative to hiring nobody. A number of costs to employ someone are fixed or otherwise don't relate directly to salary level.

Certain training, HR, accommodation, and orientation costs are relatively fixed, whatever they pay you. If they pay you in certain fringes like lunch expenses, travel, or memberships, then those don't have to fluctuate with salary. Insurance benefits also do not necessarily float with salary (though often employer-provided life insurance pays a multiple of your annual salary).

If the cost of hiring anybody, including HR, interviews, lost time, training, orientation, and so forth, is $H, and the cost of fringe benefits is $F, the cost of regular benefits is fixed at $B, and salary is $S, then your compensation value $C looks something like:

C = H + F + B + S

If they double S, without scaling H, F, or B to match (or otherwise altering your compensation), then no. This is especially true for companies that provide significant fringe benefits or travel costs for you to do your job (e.g. weekly flight costs and hotel stays) or who pay exorbitant rent for the building that includes your office (e.g. prime Manhattan or SF real estate).

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