Budgeting for Employees

Each employee costs your business far more than the wages or salary he or she receives. How do you know if you can afford the aggregate cost of another employee? There's a tension between how much the salary, benefits and other costs will drain your business's budget, and how much extra money the employee's presence will bring in.

One way to assess the benefits is to estimate how much extra income the new employee will generate in the first year. It's not always easy. It's relatively easy to figure out how much income a new employee will likely generate if the employee is going to sell your product or services.

It isn't so easy if the person is going to perform data entry, bookkeeping, or cashier duties. In the case of this type of employee, you should consider what benefits the business will derive. Will you or other employees be able to make more productive use of your time? Are there income opportunities being deferred that you'll now be able to pursue? Can you improve customer service with a larger workforce?

If you can reasonably estimate the additional income a new employee will generate, or if you answer "yes" to any of the preceding questions, then you need to do your best to figure out what the total cost of a new employee will be.