By ZentaxGo Team
Salary is the number you agree on with a candidate. It is not the real cost of the hire. Before you make an offer, test whether your cash can carry it.
What a hire costs beyond salary
- Employer payroll taxes: 7.65 percent of wages for Social Security and Medicare, plus unemployment taxes.
- Workers' compensation insurance.
- Benefits, if you offer them.
- Equipment, software, and the time it takes to train someone.
The total varies by business, but a rough starting point is 15 to 25 percent on top of salary, and more if you offer benefits.
A simple example
Say you plan to pay $4,000 a month. Add about $500 for payroll taxes and insurance and $150 for software and equipment. The real monthly cost is closer to $4,650.
How to test it
- Start with the cash in your bank account today.
- List the money you expect to receive each week for the next 13 weeks, based on invoices you have sent and what a normal month looks like.
- List what you expect to pay out each week, including the new hire.
- Find the lowest point your cash reaches.
If cash drops below about one month of expenses, wait, start part-time, or look at ways to bring in revenue first.
One caution: calling someone a contractor to avoid payroll costs can backfire if they are really an employee. If you are unsure, ask before you hire.
What to do next
Build the forecast with your own numbers before you post the job. If you would like help with it, bring your last few months of statements to a consultation.
This article is general information, not tax or legal advice for your situation.