The True Cost Employees

Knowing how much an employee costs is fundamental to the success of your enterprise

Do you know the true cost of employing each person in your organisation?

For this example, I’m going to take an 1st Line IT support / help-desk person. Let’s assume a couple years of experience, a degree in a computer science discipline, located outside of London.

A quick check on informs us that the national average salary for such role is £28,976, rising to an impressive £39,760 in London. So you just add 30%, right? Not so fast … there’s more to this equation than you realise (unless you’re an accountant, in which case you know the reality).

With your research complete (and knowing what you’ve had to pay for your current staff), you’ve settled on the national average. At 40 hours per week, that’s £13.93 per hour. Interestingly, this salary is much the same for recruitment resourcers or researchers, junior accounting functions, payroll clerks, marketers and so forth.

First add the obvious Class 1 NIC of £3,979, and perhaps some modest optional benefit such as a gym membership at £1,200 p.a. (bearing in mind that private healthcare is £2,400 p.a.), and now you know your Class 1A NIC payment is £166 p.a. Your new cost for the person is £34,320 p.a.

Well, your new 1st Line Support person is going to require a degree of training (say, £500), core software licenses (even if just the MS-Office suite) (£120), IT equipment and support throughout the year (£2,000), and consumables which will range from tea and coffee, through to printer toner and toilet paper (£100). Add on a further £500 for their apportioned share of the office space they utilise (not forgetting electricity, heat etc.), and administrative time such as the actual cost of line management, H.R., payroll, benefits administration, and there’s no accountant who’d dispute the costs here reach £1,000 more. This is a distinctly conservative estimate.

Your actual cost for this person is now understood to be £37,420 p.a., which is an increase of 34% above the base salary!

However, the reality of the ‘typical’ employee, is that there’s ten minutes of wasted productivity per hour worked, there’s also time off for formal training, and the statutory minimum of 28 paid holidays per year. Factor these costs in terms of lost productivity, and you’ve just found another 30% of costs.

But is that the full picture? What of your liabilities? With every employee there is an exposure to risk, encompassing such topics as redundancy, employment tribunals, occupational safety, insurance, sick time, maternity and paternity pay? We can’t assume that every employee is going to cause these costs to be realised, but as and when they do, it’s more cash off the bottom line.

Thus far, we’ve concentrated on a single team member. The cost equations change dramatically when you factor a team of ten such staff. The costs of office and other infrastructure increase exponentially: now you’re considering a substantial office environment, with additional line management too.

At Euro BPO, and in partnership with our specialist consultants, we approach cost reduction from the ground up. Certain processes can be improved or, perhaps, automated. Other expenditures can be reduced, but effective control of payroll can deliver immediate efficiencies and a total elimination of multiple risk factors.

At Euro BPO, our mission is clear: we enable our clients to save a minimum of 35% on the cost of employment. So take the £37,420 actual cost detailed above, apply the savings, and your cost of employment has fallen to just £24,323, a total savings of £13,097 per employee. What of the major city rate? For London, the savings might skyrocket to £23,881 per year!

As a closing thought, consider the scale of savings to be realised on an entire team. In these challenging economic times, savings such as this can make the difference between growth or stagnation.

Humperdinck Jackman

Co-founder & Director, Euro BPO Limited


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