What do benefits cost an employer?

Factual Questions
1

Okay, fairly soon I’ll be in negotiations for a yearly salary at a newly created position within my company. I happen to know the company was paying $65\hr to have this same work done by consultants (8 hours a day five days a week).

Since I will be doing the same work but will cost my yearly salary plus dental, prescription drug and pension plan I would like to know how much on average those extras cost a company. What kind of wage could I ask for and still come up under what the consultant would cost?

I would like to be armed with some general numbers before I go in there, being able to say: “you pay about $150,000 a year for this work now, my benefits will cost roughly X dollars (or percentage or something) so I would like such and such amount yearly and you will still be saving this much” would help greatly.

Oh and I’m in Canada which I’m sure will make a big difference.

Thanks!

2

A statistic that I have heard thrown around (in the US) is that benefits typically cost about 50% of a person’s salary.

3

Wow that much eh?

Anyone know if this is around the same in Canada?

4

In the U.S., the big rock in the sack is health insurance, which is otherwise provided for in Canada. So I’m guessing no, it wouldn’t be the same.

5

I just checked my compainies site and they say this:

Compensation is a lot more than just your paycheck. Compensation includes base pay, bonuses, and commissions. Benefits include healthcare coverage, life and disability insurance, retirement benefits, vacation, holidays and sick days. The chart to the right demonstrates how the compensation and benefit pieces fit together to form your compensation and benefits package. Pay for Time Worked (the paycheck) accounts for 72% of the total dollars that BIGTIME CORP spends on employees, while employee benefits account for 28%

I even took out a couple BIGTIME companies specific benifits becaue they would be upset if I listed all of their perks, but the numbers are fairly average for the industry. Between 26 and 30 percent of your pay is company paid benifits.

6

Not all of the costs often included are benefits either. The various social security taxes and other things are often piled in as associated costs.

Like has been mentioned, health insurance can cost up to $10,000 or year or more for an employee with a family plan.

Easy ones to calculate are how much paid time off you get and things that have direct costs associated with them like education subsidies. Life, LTD, STD and those types of benefits don’t usually cost the employer all that much. Something like workman’s compensation and unemployment insurance can add up quickly.

I work for a benefits outsourcing company and know many of the costs well but I don’t know enough about Canada or your company to give a good estimate.

I will say that I tried exactly what you are talking about when I converted to a permanent employee a few weeks ago and it failed miserable. They didn’t seem to care how much more I was making before. They just said permanent employees get stability and if I didn’t like it, I could stay a consultant until they kicked us out in a few months.

7

Figure on pension making up a chunk as well.

approx 2K a month for the next 25 years will get you a 4k pension for 25 years approx. Go find a financial calculator and figure out how much you need to be building each month to have a pension and add that in.

As mentioned , medical care, national insurance?
What other benefits do you receive? transport assistence? Do you know how your company and its dartments deal with internal cost reallocations such as shared costs for Human resources or IT inrastructure etc. Whilst these may be internal funny money juggling issues, for a department manager looking at his budget, it may appear to be cheaper to hire a consultant than take on another headcount and find he has to pay a chunk more overhead to pay for the CEO office refit which is being allocated out on department headcount.
These are not things you would add into your compensation model, but you may need to be aware of them so you can figure out a way to negate any comeback (harp on about more loyalty from salaried employee, less issues with intellectual property leakage to competitors etc etc)

Remember consultants also get to charge a premium as they are not permanent, their work schedule is varible and they have to put money in the bank for those quiet times and also if they are working for a company, their companies profit has to be marked in their as well.

They also get to charge a premium because of the temporary nature of their employement is something that companies like, particularly when it comes to managing short cycles in business activity. Consultants can be made to go away very quickly and costs brought back in line with revenue, this is not so easy to do with permenent employees.

What I am trying to say in a very long roundabout way is that although the consultant is more expensive than you, some of that extra money is buying some business flexibility, thus the argument that they cost you X, I will cost you Y may be not as compelling.

Good luck

8

It also depends on the extent of the benefits. For example, just an overview of my pay stub shows that my company directly pays about 25% of my gross earnings in their share of social security tax, various insurance coverages etc. That’s not counting whatever they pay in workers comp. Then I also get 5 weeks of paid time off a year, they pay for my continuing ed to maintain my insurance license and all the other perks of being a FT employee.

I’d say my benefits roughly add another 40-50% of my comp package over my actual salary.

9

After seeing Tim Horton’s commercials advertising careers that offer medical benefits, I asked some of the natives here in Ontario: socialized medicine here doesn’t cover medications at all, or dental past the age of 14, and optometry is right out. Also (unlike in Germany, according to another thread), it doesn’t cover legal, working foreigners like me, either, although they take credit cards for us.

Even so, all of those are “cheap” parts of my US Employer’s package compared to the bulk of coverage, so I can’t imagine that a Canadian employer’s costs for medical would be on par with the US (which is a major reason why my company does at least some of its business here).
(Who pays the rest of it? Hell, sales taxes [“gst, pst”] are 15%, property taxes listed on sales sheets are ridiculous, and without knowing all of the details, it sounds like income taxes are out of league, too. So, really, someone pays for it. Anyone cares to enlighten me, I’d genuinely appreciate it.)

10

I work for a giantic corporation with many subdivisions and wholly owned affiliates. Every time I do mergers and acquisitions work, we have financy (payroll) break down the costs. For our manufacturing arm (or arms, depending on how you look at it), benefits amounted to about 27% per person depending on their salary. Our manufacturing organizations are considered to be typically old-school run mentality. Our IT, outsourcing, and consulting businesses vary wildly on the percentages. IT seems to be higher, last I looked, around 35%. It was suggested that it’s because there are so many contractors and consultants that insurance costs were rising for our real employees since they were all similar – middle aged people, families of 4 or more, all using a lot of insurance. Consulting, on the other hand, was lower, around 20%, it seems (probably lower), and it was assumed that these people were mostly single, young, healthy, and didn’t really have time to use insurance.

The numbers I’m quoting do not include any taxes, but do include pension and 401(k), bonuses, and some funky number the finance people came up with to account for stock options (e.g. amortized over 4 year cascading vesting period, with an intrinsic strike price, etc.) Currently, we’re trying to get one giant umbrella policy so that we can start centralizing our benefits (and legal (almost done!), and hr, finance, and accounting).

For executives, it seems that the number is much higher (40-45%), as I had to review offer letters. However, there was no analysis for these letters, and I’m going by just by what I’m reading, so the number can be total BS, and which I can totally envision HR doing.

If you’re trying to negotiate salary, here’s my 2 cents: just emphasize value. Remind them how good you are at the work, and how little learning curve you have. Is $65 the rate to the consultant’s agency, or to the consultant himself? If it’s to the agency, that number is going to be at least $90/hr, and I wouldn’t be surprised if it was $130/hr. If you want a mathematical way of looking at it, my friend just recently negotiated his new job, and his target range was consultant wage - current wage, then multiply total by 1.15. The range is +/-5% of that number.

11

Sorry. I wish I could remember the details of a summary my ex-employer’s HR department showed me when I was doing the exact opposite - I got laid off but they wanted me to do some consulting work to do some final cleaning up and so we had to negotiate contract terms for the consulting. Suffice it to say that my benefits as part of my former job were nowhere near 50% of my salary; I’d guess maybe around 25%.

A starting point is to look at your last T-4 slip. Many benefits are taxable, so as a starting point work from what it says your gross salary was (which will include taxable benefits), and add a little more to cover the non-taxable benefits.

12

When I calculate benefit costs for research grants I calculate them at 14%. That includes health care, extended health, dental, etc, but no pension. Pension would be about another 10% depending on the value of the pension.

13

You might get a better idea of what dental and extended health insurance cost by talking to an insurance company in BC.

That said, different plans cover different things. As a doctor, I pay for my own dental and health insurance. The plan is mediocre – it covers generic drugs, $1500/yr dental, accidents, hospitalization, travel, physio but not eyewear. The cost of the plan varies with age (and possibly smoking, sex, other risks), and many plans will not cover previous chronic medical conditions.

As a single, healthy male in his thirties, the plan costs me about $750 a year. If I had a family the cost would be double that. I can’t see a deluxe family plan in Canada costing more than $5000 unless there are major previous health issues – as I said, the cost would vary by degree of coverage, number of people covered, and age.

Pensions are a different ball of wax – much depends on what the plan actually is.

Maybe these guys can help you?
http://www.benefitsworld.com/home.asp

14

A few things- how much were they paying the consultant company, or did the contractor work independent? I know a dude that got $70/hr, but his company billed $100/hr. When he went over to FT work at the contracting company (this is pretty common, being asked to stay on as a FT emplyee) they paid him only $35/hr but with excellent benefits.

It also depends on the benefits. Do they have matching 401K (or whatever those are called up in the Great White North) and if so how much? How generous is the pension plan? (few companies have both, my friends company did, so that’s why the bennies were so good). How many vacation/sick/personal days of leave? How much of the medical plan do they pay? Do they supply a company car? Etc.

So FatBaldGuy 50% figure is about right, but it could be as little as 75%.

15

Our company uses a flat rate of 39% to book the cost of fringes against full-time wages for salaried and hourly folks.

16

So, for my example (U.S.), I am on a contract through an agency for company X and I get $33\hr. 2080 hours a year gets me $68K+ a year.
I have no idea what the agency bills per hour.

So if company X wants me as an employee what can I expect them to offer me as an annual salary??

Is there any negotiating if you decline health coverage?

17

I imagine that most companies that offer health coverage won’t allow you to decline it. Maybe it affects their group rates? Who knows. I know that there’s no way I can decline my employer’s coverage unless I can show I’m covered by my spouse, for example. And then, it’s only a pre-determined savings credited towards my salary.

18

Yep, I’m already covered through my wifes plan.

19

In our company, you get a credit toward benefits that is based on your salary and FTE. If you opt out of health insurance (you have to prove you are covered elsewhere) you just wouldn’t have that hit against your credit. I believe a credit balance would be included in your pay but it’s separate from the salary level.

Of course we are not a for-profit and things may be quite different there!

20

I used to work for an agency. Our place billed double what the employee actually makes. And yes, I opted out of benefits and got an increase in salary once. Not all places will do that.

My company pays $4874 toward my benefits.