Strengthening your team requires fresh talent. Finding said talent is only half the battle, though. Employee Onboarding is equally important! If you’re a new business owner, you may think that the only business expenses of hiring a new employee will be the hourly wage or salary that you plan to pay. Ehh…not so true! Aside from the abundance of new hire forms that must be completed, there are additional costs you need to be aware of when it comes to employee onboarding.
Businesses that don’t offer benefits, paid vacation days, or bonuses still have to pay taxes and expenses when adding employees to their payroll. Today, we will learn more about what is the true cost of employee onboarding.
What is The True Cost of Employee Onboarding?
Unless you decide to find your next employee on Craigslist, which I do NOT recommend, there will be costs you need to cover a new employee. If you are a well-established small business or a new start-up, it is vital to find qualified people who can work efficiently in business rapidly growing around them.
Note: Keep in mind that finding a new hire that can change with the business will not be an easy task. A hidden cost of onboarding a new employee is wasted time; take as much time as you need to find someone with the qualities and attributes desired by your company. Anything less will essentially cost you time and money down the line.
Business Expenses for Employee Onboarding
Taxes and Compliance
Business owners are responsible for paying employment taxes in addition to their employees’ wages and reporting these taxes to the IRS on a quarterly basis. As an employer, you pay 6.2% on your employees’ wages up to $118,500 in social security tax. Medicare tax will also cost employers 1.45% of employees wages, but unlike social security, there is no wage based limit.
Furthermore, payments towards the Federal Unemployment Tax Act fund state workforce agencies and costs the business owner 6% of the first $7,000 of employees wages. Along with Federal Unemployment, depending on the state you reside in, you may have additional business expenses for state unemployment tax. These rates and policies vary by state.
Workers compensation is a form of insurance that provides wage replacement and medical assistance for employees injured at work in exchange for not suing their employer. All businesses that hire an employee are required to purchase workers’ compensation insurance. Workers compensation will also vary by state. For example, South Carolina requires 1.82% of the employee’s salary while Montana requires 2.49%.
Work Area Supplies
Depending on the area and type of business you operate, the business expenses of providing a workspace will vary but are required to operate. For businesses that have an office environment, employers must provide necessary accessories such as desks, computers, phones, printers and other equipment. Other business types will also be required to provide equipment to employees for daily operation.
What To Expect
Depending on the state in which a business is located, business owners can expect to pay 10 – 15% on top of salaries or wages to cover payroll taxes, employment taxes, workspace costs, and workers’ compensation insurance.
A few things to take away from this blog:
- Always consider the true cost of employee onboarding and determine if/how many are needed.
- It will cost you more as a business owner to have a high turnover rate if you hire people incapable of the work required.
- Keep track of all business expenses for your annual tax filing requirements.
We know that understanding the world of payroll taxes can be confusing, especially when it’s time to file. That’s where TaxBandits steps in! We take pride in being IRS-authorized and provide you with a safe, secure and accurate e-filing process that will save you time and money.