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As an employer you pay a lot more for labor than your employees take home with their pay
check. However, many employers do not know or they don’t take the time to figure out how much
their employees actually cost their business. In many cases labor cost is the single largest expense
burden on your business. Therefore, it is critical that you know exactly how much each persons
wages is truly costing the business.
The information that you need is the cost of each employee for each hour that they are
productively working at their prescribed job. This will help you determine the appropriate wage
rate to charge to your customers so all of your costs are covered. Just a subtle reminder, if you are
not billing or charging your customers the appropriate amount to cover all costs then how are you
guaranteeing your business a profit.
The way to calculate your labor cost per productive hour is to subtract the tune that you are
paying for but the employee is not working, such as vacations, holidays, sick days, time lost due to
accidents and daily breaks. Figure out what all of your labor costs are and then divide that total by
the number hours worked per year to arrive at a per hour cost. Non-productive time (travel time,
breaks, lunch, etc.) on a day to day basis is handled by applying a productive time.paid time ratio to
the total of all other labor costs.
Before the first employee is ever hired and the first paycheck is ever written for wages earned
many preliminary steps must be taken.
The following is a list of what needs to be done before an employee is hired:
• Obtain a Federal Employer Identification number.
• Obtain a copy of Pennsylvania Combined Registration Forms and Instructions, commonly
referred to as the PA-100.
• Obtain a copy of the Pennsylvania copy of the New Hire Reporting Form. New for 1998
• Obtain Worker’s Compensation from a private insurance company or from the State Workmen’’
Insurance Fund (SWIF). Having Worker’s Compensation Insurance for your employees is
not an option it is a requirement of the law.
• Call or write to your local Bureau of Employer Tax Operations in your area to register your
business with the Pennsylvania Unemployment Compensation Fund. In Pennsylvania, you are
required to pay into the State Unemployment Fund for all of your employees.
The following is a sample labor cost calculation illustrating the impact of benefits, taxes and non
productive rime on labor costs
We Salute Our Dairy Farmers
Do You Really Know How Much
It Costs to Hire Employees?
3rS automatic farm systems
a 608 E. Evergreen Road, Lebanon, PA 17042
I Phone: 717-274-5333
Penn State Extension SsdvSSS.on
Bucks County Paid Holidays
■ Non-productive tune
for Grinding High Moisture
& Dry Grains
Grinds Finer than jJBLr
• Low initial Wf
• Low maintenance ,3R
• Low operating cost
• Easy serviceability
• 360° screen , , r 'JjKn
• Reversible hammers &
• Compact design
• Heavy duty plate magnet
• Dust tight enclosure
• Removable wear plate
• Self locking door latches
At $8 00/hour, the employee will earn $64 00/day
(before taxes) and has the potential to work 2,000 hours per year before overtime
Two weeks paid vacation (80 hours or $640) amounts to 33/hour
Eight paid holidays (64 hours or $512) amounts to 26/hour
Coffee breaks (two ten-minute breaks/day equals 80.67 hours/year, $645 36/year) or 32/hour
Non-productive time - average of fifteen minutes/ day (61 75 hours/year or $494/year) or 25/hour
Federal Unemployment (.8%)
State Unemployment (3.5%)*
Workmen’s Compensation Ins. (10)*
Health Insurance ($2OO/month/emp)*
Liability Insurance ($2OO/year/emp)*
Other (Christmas party, picnic)
Total Hourly Cost
* Will vary depending upon your business
Because you are paying for 8 hours of work, but only getting 7 hours of productive work divide 7 by
8 to determine your productive contingency factor. Then divide the total hourly cost by that number
to determine what the employee costs you each hour that they are actually working.
Actual cost of employee/hour
($12.34 Total Hourly Cost/0.875)
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to personal choraciensttcs not related to ability performance or qualifications as determined by University policy or by state or federal authorities The Pennsylvania
State University does not discnmmaie against any person because of age ancestry color disability or handicap national origin race, religious creed sea sesual
orientation or veteran status Direct all inquiries regarding the nondiscrimination policy lo the Affirmative Action Director The Pennsylvania State University 201
Willard Building University Park PA 16102 2801 tel (II4)865-470(W (114)163 II3OTTY
Lancaster Farming, Saturday, June 13, 1998-A4l
HOT WATER HOTAIR
WATER FILLED GRATES
§ WARRANTY 10 YEARS 3
i a OPTIONAL 8
XZS AUTOMATIC OIL BACK UP
I*] COUNTRY PINES
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637-A Georgetown Rd.
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(or leave message)
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