Are you a business owner that wants to grow your business? Do you need to expand your team to do so?

People who have a successful business and want to grow will most likely need to expand their team. It’s worth recognizing though, that being an employer is not for the faint of heart. It has become increasingly complicated to employ workers, particularly in states like California and New York. It’s also becoming more expensive.

There are mandatory costs to employing a team that are required by statutes and regulations, and there are optional benefits that many industries provide in order to be competitive employers. Then there are costs to human resource and payroll management, including annoying employer compliance maintenance.

The Statutory Costs of Maintaining Employees

Every employer must pay the following costs for each employee, as required by regulations.

• Federal Insurance Contribution Act (FICA – also referred to as Social Security) – As of January 1, 2025, the percentage is 6.2% for wages paid up to $176,100.
• Federal Medicare Health Insurance (MHI) – As of January 1, 2025, the percentage is 1.45% for wages paid.
• Federal Unemployment Tax Act – As of January 1, 2025, the percentage is .6% for wages paid up to $7,000 unless your employee is in California, New York, or the Virgin Island then the amount will be increased until those states / territory repay their Federal unemployment loans.
• State Unemployment Insurance – Both the percentage and the wage limit vary by state. The percentage rate is anywhere from .08% to 11.85% and the wage limit pay range is anywhere from $7,000 to $68,500.
• Workers Compensation Insurance – This also varies by state and workers job position classification. The range is anywhere from pennies per $100 paid to $25 per $100 paid for the risky positions.

The Cost of Optional Benefits

To attract and retain the right talent, a company needs to consider the benefits they offer. The cost of these benefits varies greatly depending on coverage, industry, and location. Below are some of the most common benefits to consider.

• Health Insurance Benefits
  • Medical Insurance – The cost to cover an employee depends on the group size and type of coverage. Some businesses might be required to offer Affordable Care Act (ACA) coverage of minimum essential coverage as well as be affordable to the employee.
  • Dental Insurance – The cost to cover an employee depends on the group size and type of coverage.
  • Vision Insurance – The cost to cover an employee depends on the group size and type of coverage.
• Additional Programs
  • 401(k) Plan – Some businesses might be required to have a plan that meets the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act.
  • Flexible Spending Accounts (FSA) – These types of programs allow pre-tax deductions for qualified medical, childcare and commuter expenses.

Next, let’s look at the compliance requirements of an employer.

The Compliance Costs of Employees

Some of the requirements are driven by the federal government and others by the state or local government. Either way, each employer must assure the federal and local requirements are met, equating a real resource cost to stay in compliance.

• Work Status Verification – Is the employee legally able to work in the United States? This is the I-9 verification requirement.
• Minimum Wage – This is the minimum amount of hourly pay rate an employee must be paid. For more information and the most up to date minimum wage information, download this guide.
• Paid Sick Leave – More and more states and cities are dictating the amount of paid sick leave an employer must give their employee. Check out the paid sick leave requirements in your area with this cheatsheet.
• Sexual Harassment Training – This is another area more states are dictating that the employee must take training within a specified amount of time from their start date of employment. Here is a resource with the most up to date training requirements.
• Posters – Both the federal government and states require posters giving employee notice of their rates and other legal requirements. This could include minimum wage to how to file a grievance.
• Legal Notices – There are many different types of legal notices an employer must provide their employee. Some examples include:
  • Equal Employment Opportunity (EEO)
  • Anti-Discrimination Notice
  • Withholding Status
  • Uniformed Services Employment and Reemployment Rights Act (USERRA)
  • Family and Medical Leave Act (FMLA)
  • Minimum Wage
  • Employee Polygraph Protection Act
  • Occupational Safety and Health Act (OSHA)
  • Pay rates and basis
  • Meal and breaks
  • Payday timing
  • Employer’s contact information
  • Workers’ compensation insurance carrier’s contact information
  • Paid sick leave information
• Classifying an employee’s exempt vs non-exempt for overtime consideration

These are just some of the compliance requirements an employer is up against and must invest resources in tracking and maintaining. These add a true cost to the employer for each employee they maintain.

Lastly, an employer needs a team experienced in Human Resources and Payroll to support all of these requirements.

The Costs of Employee HR and Payroll Responsibilities

Properly onboarding and maintaining an employee requires multiple tasks across HR and Payroll teams, creating an additional investment from the employers.  Some of those requirements are:

• Onboarding an Employee – This includes completing the new employee’s documentation and welcoming them to the company. Documents should include protecting the company’s proprietary information and an employee handbook.
• Producing payment to the Employee – This includes collecting a timesheet, preparing the paycheck, filing payroll tax returns, filing year-end tax returns / form distribution, and answering employee’s payroll questions.
• Managing the benefit programs – This includes notifying the employee of eligibility, enrolling the participant into the plan(s), answering questions, terminating benefits, and offering COBRA insurance, if applicable.
• Worker’s Compensation Injury Coordination – Hopefully, this doesn’t happen often, but when it does, a worker’s compensation claim must be managed efficiently to get the employee healthy and back to work.
• Employee Relations matters – This is an expensive one if not overseen properly. We have found that being pre-emptive with an employee’s concerns helps to mitigate the long-term effect of the situation.

These are just some of the factors to consider when you’re the employer. The good news is that there are cost-effective alternatives to managing employees and shouldering the costs of employee management.

When you add up the costs of these statutory and optional benefits, the cost to employ a worker could easily be 35% to 50% or more for every dollar of wage paid.  Meaning the true cost of a $50 per hour employee is actually $67.50 – $75 per hour.

To review a comprehensive list of all the costs of being the employer (and what a Workforce Partner might look like), in a detailed list, then request your free guide: Direct Hire vs Strategic Workforce Partner by completing the form below.  

Contact us today for a workforce consultation to discuss your specific situation and explore options to for managing your team.

ClearPath is a leading Strategic Workforce Partner company focusing on the contingent labor market. We’re committed to helping business owners stay compliant and minimize the risks associated with their contingent labor requirements.

No Legal Advice Intended. This article includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues.