6 Apr 2015
Sometimes entrepreneurs and business owners turn to us because they have come to crossroads. Should they continue offering their service using their own time or would it be more useful to hire an employee for the job. They want to know, what the expenses are, which they need to consider, when hiring staff.
There are two ways to go about it in assessing the issue. If the salary for the employee is agreed, you can calculate how much the customer needs to pay in order for it to be possible to pay such a salary. Or the other way around, when you start with knowing how much the client is willing to pay, it is possible to calculate how much of that you can pay to the staff, considering their salaries and other expenses.
The new employers are often surprised to learn that in reality the total staff related expenses are very different from the direct salary related expenses you can determine using salary calculators, which can be found on the internet.
In Finland, the monthly salary related expenses are about 122% of the gross wage. Tax free cost compensations, which for instance for construction workers can reach up to a couple hundred euros a month, are added to that. In addition, every employee has the right to an annual paid vacation. Taking into account also the vacation costs, the gross monthly salary is multiplied by 1,45. Often, the calculations end at this point. However, the costs do not, though. Further calculations cannot be done with default cost calculators. Now, the industry and specific position requirements come into play.
One of the most important staff cost areas worth considering is healthcare. The compulsory preventive expenses consist of drafting a risk analysis and conducting a regular health check for the employees as a minimum. An employee calling in sick is another significant expense to take into account. How many sick days on average do the people take in your field per year? According to the Finnish Employment Contracts Act, the employer must pay for the employee’s first 10 days on sick leave, but considering current collective agreements in Finland, the paid period can be even longer. The Social Insurance Institution of Finland (KELA) will later on compensate some of those costs exceeding the waiting period.
If the absence of an employee does not affect the company activities at all, then a question about the necessity of that position becomes questionable. On the other hand, expenses will rise when other employees must do the absent person’s assignments, thus working overtime, which must be compensated. Sometimes it is necessary to find a temporary replacement employee, which can be costly. All these expenses must be taken into account.
You can think further about what kind of items must be purchased in order to make it possible for the employee to work. Does the person need a pen and a phone, or a helmet and a neon shirt or maybe a company car? You must not forget that employees may need to be trained as well. That adds more expenses.
This might conclude the list of obligations, but may not necessarily imply that this is the end of staff related costs. Depending on the business area, employees might be accustomed to different benefits which help to motivate the people. For example, receiving public transport vouchers/cards or cultural and sports coupons are a few of the cheaper options to motivate staff in some positions. Bigger companies might offer the use of the company summerhouse or even traveling opportunities as benefits to some of their employees.
So if you consider all that has been mentioned above, do not be surprised if in reality the total expenses of an employee might be almost twice the size of their gross salary. If the total cost seems too high for you to bill to your client then you can rethink – where and how much can you save in such a way that the business is still worth doing. Another option is to think how you can improve your product or service to deliver extra value to the client so that it is possible to sell it at a higher price.