Finding technically qualified people who can function
effectively is not an easy task. HR must devote time to
make sure that you are hiring personnel as close to perfect
as possible. Anything less will be a drag on your business.
New personnel may require a medical, must be mentored
for several weeks while being trained and put on probation
pending a 3 month assessment period.
Be sure to establish rational over award salary ranges
given your companies profitability. The market can create
shortages in certain skills. This means that in most cases
there could be great salary differentials between existing
and new employees. Review of wages and conditions is an
important factor in a successful working environment.
Be sure to include costs for Work Cover, Public liability,
Product liability, Professional Indemnity, Holiday loading,
Sick leave, Payroll Tax and Long service leave component.
The costs to this point are typically 1.28 to 1.32 time's
base salary range before 9.5% SGL- e.g. the cost range
for a ($60,000+9.5%SGL=$65,700)
$65,700/year employee will approximate to $84,000 to $86,500/yr.
You need to provide some physical space for the new employee.
Obviously the rent per square metre varies and depends
on the age and location of the facility. But how many
square metres does an employee need? Again this varies
but there are some guidelines. Work cubicles are typically
2.5 X 2.5 in size. The overall figure builds to approx
80 square metres per employee when you add in common space
etc. Furnishing the space, work cubicles etc will nominally
run to $2,500 at a minimum.
Plant & Equipment:
Your employees have to have access to a computer and telephone.
A figure of $1,000+ for a computer+$500 on average for
access to several thousand paid for licensed software
and a nominal $250 initially per telephone on average
when you factor in installation. Also to be considered
is the periodic expense for upgrades to computer software
and communication systems.
Business on costs:
Most businesses need to factor in maternity leave, FBT,
Audit and legal fees, Bank funding, Federal and State
charges, consumables, Technical library and publications,
trade licences Professional association memberships and
most importantly, company profit !
Industry "Rule of Thumb approach":
Instead of figuring out each cost component separately
you can develop some simple metrics. Engineering businesses
in which people are billed on projects on a time and materials
basis, you take the employee's base salary and multiply
it by ~1.30 to cover employment on cost and benefits.
Then multiply that number by ~ 1.60 to cover rent,
Plant & equipment, profit etc.
Because most businesses have a proportion of non-billable
administration staff, you must multiply the result
of the first two multipliers by a further ~ 1.20.
For professional engineering consulting business the permanent
employee costs about ~
2.50 times the base
salary for each employee (this is an industry standard).
Hiring is always a difficult but most important activity.
To hire exactly the individual who meets your every requirement
is rare. Delay in hiring and you will have trouble meeting
your scheduled requirements, hire too quickly and you
expend cash before revenue any productive headway is made.
Consider using independent contractors to cover peak periods
if your business does not have too steep a learning curve.
It is not unusual for a business to be made up of 80%
permanent staff with hourly rate contractors making
up the remaining ***20%***
Productive working hours
The productive working time is the residual time after
the removal of Public Holidays, sick/carer's leave, annual
leave, long service leave allowance etc.. based on a 38
hr working week per 52 week year equals 1976hrs less the
non productive hours of 322 = 1654 productive hours /
year ( if employee is 100% efficient)
You now can understand the matrix of "on costs"
associated with permanent employment. This can help you
avoid some really unpleasant, expensive and regrettable
business to be profitable, you must review exactly the
cost of running your business, and a significant component
of those costs is the REAL cost of an employee.
for the denominator..
for 40hr week = 1741
for 38 hr week = 1654
for 35 hr week = 1523
Hourly Rate = (Employee Annual Gross Salary + SGL (9.5%))
= $132.41 /hr /38
and then click "Calculate"
The above illustrates the actual recovery costs required
per permanent employee per hour to operate a profitable
is costed at an hourly rate and is inclusive of all statuary
costs both Federal and State so the one hourly rate is
significantly cheaper than permanent employment of a similarly
This information is general and is designed to give
the reader an overview of what costs maybe incurred in
the employment of personnel but in no way accounts for
all industry types, business sizes and locations.