Lessons · Accounting · what a worker costs against what they are paid
What a worker costs, against what they are paid
The business's cost is the gross pay plus the contributions the employer itself owes on top. Those employer amounts are not deducted from anybody: they are an additional expense, and they are why a salary figure is never the cost of employing somebody.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
It is the number a manager needs to make any decision about hiring, and the number they usually do not have. Budgeting from the salary alone understates the cost of every hire, and the gap is large enough to change whether a role is affordable.
How to think about it
Take the gross. Add every contribution the employer pays on top, at the rates in force. That total is the cost. The deductions from the worker's pay do not come into it, because they were already inside the gross.
Worked example
Gross payWhat the worker earned. Already the business's expense.
Plus employer contributions on topAn additional expense, not a deduction.
Equals the cost of employing them for the periodThe number that belongs in a budget.
Worker deductions are NOT addedThey are inside the gross already. Adding them double counts.
Your turn
Name what is added to gross pay to reach the employer's cost.
Employer cost = gross pay + employer
Solve one, graded on the server
The trap
Adding the worker's deductions to the gross to find the cost. They were withheld FROM the gross, so they are already in it, and adding them counts the same money twice.