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Knowing the real cost of wages to your business is critical for being able to put together accurate quotes that ensure profits for every job. There are a number of steps that need to be followed to work out the real cost of wages and the easiest way to explain it is with an example. Below is an example from a plumbing company I’m working with. By going through this exercise with him, he now understands the real cost of his employees to his bottom line.
Let’s run through the Wages for an employee on $36/hr
|Hourly Rate||$36 x|
Now let’s look at the Hours Paid for with Wages
|38 hrs x 52 weeks =||1976hrs|
|Minus Holidays 4 weeks x 38hrs =||- 152|
|Minus Public Holidays 11 x 7.6hrs =||- 83|
|Minus Sick Leave 10 x 7.6hrs =||- 76|
|Actual Hours Worked =||1665 hours|
Now let’s look at the Real Cost of Wages by taking into account other expenses.
|Super @ 9.5%||$6,758|
|Payroll Tax (@ 2.4% > $650k)||1,707|
|Coinvest LSL (@ 2.7%)||1,921|
|WorkCover (@ 1.27%)||903|
Real Cost of Work/Hr = $84,025/1665 = $50.47/hr
This is 40% more than the payslip rate. ($50.47/$36 = 1.4)
Watch this helpful video to better understand the calculations.