How to Calculate the Cost of Employee Benefits

how to calculate the cost of employee benefits

Providing quality benefits can improve employee satisfaction and increase productivity. But how do you know if you’re getting a return on your investment? You’ll need to know how much you’re spending on benefits.

Calculating employee benefits might seem complex and difficult to address directly. The costs of different benefits can vary, and it’s difficult to know which employees will opt in for each type of benefit. There are also other variables to consider, like levels of enrollment or utilization. But calculating these costs doesn’t have to be complicated. The first step is to figure out exactly which kinds of benefits you’re offering or plan to offer.

Different Kinds of Employee Benefits

Employee benefits come in all shapes and sizes, and can vary from one company to another. Most companies offer some of the same basic benefits, like health insurance and retirement, while others also offer things like tuition assistance, employee discounts, gym memberships, or retirement planning services. Let’s take a look at the three main types of employee benefits, and how they can affect your business expenses.

Mandatory Benefits

Some benefits are required to be provided to your employees by law. These federally mandated benefits include Social Security and Medicare, unemployment insurance, workers’ compensation insurance, and Family and Medical Leave Act (FMLA) protections. It’s important to note that while employees have Social Security and Medicare taxes withheld, the employer portion is considered a mandatory benefit.

Social Security (6.2%), Medicare (1.45%), federal unemployment insurance (6%), and state UI (0-10%) are calculated as a percentage of the employee’s salary, up to the taxable wage base. These benefits are relatively easy to calculate; just multiply the benefit percentage by each employee’s wages up to the wage base.

For workers’ compensation insurance, your industry, total payroll, and history of losses determine your premiums. Rates are expressed as a dollar amount per $100 of payroll, ranging from $0.50 to $2.00. To calculate the cost of workers’ comp, you’ll need to know your classification code and rate. All you have to do is divide your total payroll by $100, and multiply the result by the workers’ comp rate.

Although FMLA benefits don’t involve a per-paycheck or per-month fee, they do result in lost productivity and t