An employee's rate of pay may be fresh in your mind. However, this is not the total cost of employing that person. A further 28.4% AT LEAST needs to be added for the costs of National Insurance, holidays and sickness.
For example, let us assume a minimum hourly pay rate of £10.42 per hour. Take a normal working week as 40 hours. The base salary is therefore £21,673.60 for 2,080 hours per annum.
The employer's NI contribution (as of April 2023) is £1,735.16
Annual cost with NI is £23,408.76
Companies are obliged to automatically enrol their staff into a pension scheme. The minimum employer contribution is currently 3% of qualifying earnings. This equates to at least £458.33 in this example.
The total annual cost is now £23,867.09
Every employee is entitled to a minimum of twenty eight
days paid leave. The number of hours worked is reduced by 224.
hours worked reduces to 1,856
Absence due to sickness also needs to be accounted for.
A widely recognised average rate in a 'normal' year is 3.5%. This means the average
employee will be away from work for 9 days every year.
So total hours actually worked is 1,784.
Divide the total direct employment cost by the number of working hours and the worker on the living wage is costing £13.38 per hour.
Additional workloads: asking
your current staff to work overtime is expensive. This is most likely to
incur a premium of 70.7%. Overtime can be
paid at time and a half,
hence adding 50%. National Insurance contributions add a
further 13.8% of this.
Recruitment: Studies suggest this is typically 10% of the annual salary.
Administrative costs: e.g. payroll costs, banking charges and the cost of other personnel functions.
Idle time: a permanent employee is paid whether there is work to be done or not. There could be certain months when trade is slower. There could be certain weeks when production facilities undergo maintanenance work. There could be a failed delivery on a particular day. Any number of reasons why there is no work to be done but staff still expect to be paid.
Pension contributions: Companies are now legally obliged to automatically enrol staff into a pension scheme. The above costings show the legal minimum. Some companies are more generous.
Maternity and paternity pay: currently a new mum can expect to be paid 26 weeks for maternity leave, father's 2 weeks. Furthermore, a father may choose to take the entitlement instead of the mother.
All in all, an employee's basic pay is only the start of how much it costs to employ someone.
Not quite sure?
The GLA - Gangmaster Licensing Authority - publishes a guidance to the very minimum rate that can be feasibly charged. Look at their article to see indicative minimum charge rates.
* Slotting in a temp' worker enables you to remain flexible, often at very short notice.
* Temp's are usually ready to work immediately.
* You pay only for the hours worked, without having to worry about holiday and sick pay.
* Administrative costs are minimal.
* It is the chance to give someone a trial. Many temp's become permanent staff.
* It is much easier to finish a temporary worker since the very nature of the work makes it a temporary arrangement.
Recruitment agencies usually charge for their staff at an hourly rate. The uplift charged by the agency will depend on several factors, including;
* The cost of recruiting the required skills.
* The length of the contract
* The number of temps to be placed.
* The location of your business.
* Whether you have an exclusive agreement with the agency.
* The size and reputation of the agency.
We believe in taking an ethical and fair approach to business. Looking after the interests of our employees pays dividends in the long run. Some agencies use umbrella companies to pay their staff. We deduct tax and NI as per HMRC rules. We do not use any tax avoidance schemes. The following link explains the pitfalls of such an arrangement.