So, your business has grown from being a one-man band micro-business and you are ready to start employing staff. You have an idea of the type of person you would like to employ and a range of salary that you feel would be at the right level for the skills and experience of the person you would like to employ. You have built the cost into your budget (yes, you are doing budgeting because that has given you the confidence to proceed with the new staff member) but have you included all the costs?
Below are a few additional items you may wish to think about:
SuperannuationThe rate is currently sitting at 9.5% and means that there is an additional charge to the business over an above the base salary. For example, on a salary of $75k you need to add an additional $7,125 to your cost base. Superannuation is compulsory and there are penalties if it isn’t paid on time into relevant superannuation funds. There is also talk of increasing this to 12% over a period of time, although this hasn’t yet been legislated.
Payroll Tax
While you will not need to worry about this until your total salary costs hit the tax free limit, once you have a number of staff and your total salary exceeds the lower limit, there will be an additional 5.5% (in WA) cost to your business on total salaries over and above.
Annual Leave
Employees are legally entitled to 20 days per annum, plus public holidays, of annual leave. This is accrued on a regular basis and can be carried over into future financial years. Notwithstanding the human aspect of ensuring that staff take sufficient time off to remain healthy and productive. If staff do take all of their leave per annum, will you need to backfill their role while they are off? If they don’t take all of their leave, there will be an additional cost to the business that you will need to accrue for when they take the leave at a future point. If you do backfill the four weeks or they go through the year without taking all of their leave there is an approximate 8% additional cost to your business on top of their base salary.
Long Service Leave
This is more of a long-term issue for businesses as it only applies to long term employees. However, it is something worth being aware of and bearing in mind when planning for staff. With your awesome company culture and management style there is no doubt that your staff will wish to remain for the long term and so you need to have this in the back of your mind when planning staffing costs.
Workers Compensation Insurance
If you’re employing staff, or contractors in your premises, you need workers compensation insurance in case an accident or other medical issue arises as a consequence of their employment. The cost of workers compensation insurance depends upon your total payroll costs but if you use 3.0%-3.5% of your base salaries as a factor to estimate the additional cost to your business when employing staff, you should be able to cover quite well the cost you could expect.
From the above, you can see that there could actually be up to 20%-25% of additional cost to your business when employing staff, over and above their base salary. When calculating whether you can afford to take on staff, make sure you have given these items some consideration and factored them into your calculations.