Today I want to talk very briefly about the cost of an employee to the company versus take-home pay.
The average worker costs roughly 30% more annually to his/her organization than the flat value of his/her wage and salary (this includes time off, pension, insurance, supplemental pay, and other legally required benefits).
As you can see from analyzing the chart below, it’s possible for an employee to become much more expensive to his or her organization in a given year without seeing any change in take-home pay.
When I look at this chart I immediately think about the sometimes crippling costs of defined benefit pension schemes to employers. For years now there has been a move in the private sector towards defined contribution schemes – a move that makes many employees irate once it happens. On the other hand, employees aren’t willing to pay for the rising cost of the benefit plan (much of which is driven by longer lifespans), becoming upset when1. There are many reasons beyond cost savings that lump sums are given out, including the need to preserve the integrity of pay ranges when employees reach the top of their grade.lump-sum payments are given out on occasion in the lie of merit increases.
For the record, I understand the anger – everyone wants to make as much as they can. With that said, however, there is a fundamental misunderstanding by most employees of just how much they cost to their employer.
This is something that I really think employers need to provide more education to their employees around, both as a retention tool and an engagement tool.