How To Estimate Costs of Staffing When Running a Business

Running a business entails different initial and operating costs. Among the initial costs are investments, like equipment, buildings or office space, and the like. Running or operating costs mostly entail inputs like human resources. Being a variable cost, the cost of staffing might be simplistically viewed in a macroeconomic sense: if you want to produce more, you hire more, and pay Y number of people X dollars, and the cost would be X multiplied by Y. In the real world, however, it's not this simple.

When you start a business, you can perhaps hire an accountant to do the number crunching, and to take care of the legal and regulatory aspects of staffing, such as remitting income taxes withheld, social security contributions, insurance premiums, and the like. But if you'd rather have these done in-house, here's a rough overview of how to estimate staffing costs.

  • Management costs. You can either hire a manager to run your business for you, or you can pay yourself to do this. People in management are not usually paid because of their hourly presence in the office or on the field, but rather for the value they put into the company. It's important, therefore, that you have a good approximation of how much you value decision-making capabilities, and people-handling skills.

    To estimate the staffing cost for management, get the average salary of a management-level employee for your particular field or industry. This can be taken from local salary surveys.

  • Employee costs. Most of the time, skilled employees' salaries are paid on an hourly basis. So for instance, if you own a store and you employ sales clerks, the wages you pay are to be equivalent to the set hourly standard in your industry or locality. This can be set by the local wage board, or sometimes agreed upon with the labor union.

    When you're running a business, a good place to start is the base staffing level. Ask yourself what level of output you intend to accomplish, and try to estimate the number of personnel you need. For instance, you run a factory that assembles motherboards, and one person can assemble a certain number of boards per month, then you can estimate how many people you need to hire in order to meet your sales quota. This might be a simplistic view of running a business, but one good way to set a budget for staffing is to outline the key positions and salary levels, so you can limit your hiring to these positions and salaries.

  • Bonuses and overtime pay. Depending on labor laws, companies are usually obliged to pay employees 13th month bonuses and holiday bonuses. Employees are also entitled to double pay (or at least an increased rate) if they work during holidays, or during night shifts.
  • Social security and other fees. Social security contributions are usually a burden equally carried by both employee and employer. Be prepared to shell out 7.5% of an employee's salary as your contribution. The other 7.5% is deducted from an employee's pay. Same goes for insurance premiums. The company can usually choose to shoulder this entire expense, but it can also be a shared burden. Meanwhile, other deductibles, like tax withheld, are usually taken only from the employee's salary.

These figures are then summed up so you can get an estimate of how much staffing would cost at any given period. This could vary as your business grows, and as your employees gain tenure in the company, as they can be given raises and bonuses through time.


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