Explain the benefits
Many employers are approached by employees who would like to earn more money. They may be ambitious, or they may be dissatisfied.
I believe it is important to PROACTIVELY make sure your employees know what you provide in exchange for their labor and be explicit about the cost. Often, we talk about these things while interviewing, and we wave our hands at vague costs, but we all forget and it’s important to provide periodic reminders.
You can do this a number of ways, but I think a list of your costs is a great place to start. This list might include things that may or may not be perks. For example, a vehicle for work isn’t really a perk to the employee, unless it is available for personal use. But it is still a cost to you. And it would be a cost to them if they ran their own place or worked in town.
Here’s an example:
Salary $ 30,000
Employment Taxes - 7.65% $ 2,295
Worker's Comp - 3% $ 900
Employer's portion of Health Insurance Premium $ 12,000
Employer's contribution for 401(k), SEP, or SIMPLE $ 900
Housing $ 12,000
Utilities $ 3,600
Ranch Beef $ 1,200
4 personal horses Feed, Vet, Shoeing $ 7,340
Pickup depreciation and R&M $ 7,000
4-wheeler $ 1,500
Gas/Fuel $ 4,500
Small Tools $ 1,000
Total Employee Costs $ 84,190
You may not provide all of the benefits in this example; you may provide more. But the important thing is that there is often a dramatic difference ($54,190 in this example) between the employee’s gross pay and the cost to your business. If the employee had a job in town, they’d have to pay taxes on something much closer to the total amount.
Building and sharing this list with your team can serve multiple purposes. In addition to helping employees understand their pay rate, it may also inspire them to look for ways to cut expenses, thereby improving the bottom line. It may also inspire both of you to look for trades that might reduce taxes.
In this example, a few things come to mind that could be topics for discussion:
Make sure you also visit with employees about the difference between their gross pay and their take home pay. The federal government and many states get a cut of everyone’s income. Even if you live in a state with no income tax, there are still state level charges such as unemployment insurance and worker’s comp. Since employees don’t write a check for payroll taxes, they are easy to forget.
How much tax savings is generated by including housing in compensation? Everyone pays FICA taxes, so it’s fair to start with 10% as a round number and that DOESN’T INCLUDE ANY INCOME TAX. Add more if you also pay income taxes. What does that mean? It means that you need to earn at least $1,100 in gross pay to pay $1,000 rent.
Is each employee producing $100,000 in value? Each employee needs to generate enough new revenue to pay their salary, cover risk, and profit the company.
Maybe we could look for ways to reduce our utility and fuel usage a little to save some money.
Quitting chewing tobacco often saves a lot of money on health insurance premiums. Maybe there’s room for a program to help employees quit tabacco use that will reduce future health insurance premiums.
While we are on the topic of health insurance, if your business pays employee premiums, in full or in part, it’s a good idea to let them know how much that is. Insurance premiums have skyrocketed in the last decade, and I’m not sure many employees understand how valuable this perk really is. Again, this is a benefit that isn’t taxed, so employees often receive multiple benefits with employer sponsored health insurance.