Ask CPA Sam: How Much Do I Really Cost?

The U.S. economy is showing some signs of life again. Some employers may be more apt to give some small raises this year. According to aMercer survey, the average rate of base salary increase in 2013 will be around 2.9%. This compares to 2.7% average increase in 2011 and 2012. So you’ve done your best this year and showed your employer that you are not only incredibly valuable, but also the most productive and irreplaceable of the employee population at your company. You think you’re due a much bigger raise than usual because you are a much better employee than average. But…do you ever stop to think about what your true cost is to your employer? That annual salary number is very likely a lot lower than your actual cost. Let’s do a quick calculation.
Fact pattern:

• Annual salary: $45,000 per year paid twice per month or semi-monthly. You have a nice relaxing desk job
• 401(k) match: 3%
• Insurance paid 50% by employer

In your paycheck, you notice that Social Security and Medicare are withheld first (and likely Federal and State tax too) before you even get your check. Did you know that your employer matches that amount as well? In this case, you have 6.2%, or $116.25, withheld for Social Security and 1.45% or $27.19 withheld for Medicare. Your employer must pay that as well. In our example, there is a 3% match from your employer towards your 401(k) contributions. That means $56.25 per check. Group health insurance varies depending on the make up of the group, but let's say that costs $450 per month. You and your employer then contribute $112.50 per check. Your employer also pays anywhere from .5% to 10% of your salary towards Unemployment Insurance for you. There's in an income limit to this that I will assume is $10,000. Your employer must also carry workman’s compensation insurance on you in case you are injured on the job. These premiums depend on how risky your job is and can range from 1% to 10 or 11% of your salary. There are other costs as well, but these are the typical extras employers pay that are invisible to the employee. Let’s see how all this adds up on an annual basis.

• Salary – $45000
• 401(k) match – $1350
• Health Insurance – $2700
• Matching Taxes – $3442.56
• Work Comp Ins – $450
• UI Insurance – $100
• Your total cost = $53042.56, which is an 18% premium above your stated rate

How can you use this information? Use the free Salary Calculator at PaycheckCity.com to figure out how much of your paycheck you will take home based on your withholding settings after your desired raise. Add the estimated employer calculations above to your company to see how much any increase in your salary will cost your employer. Are you worth it? Will they go for it? Now it’s up to you to prove how valuable you are as an employee. But that’s another article!