What does an employee cost? Calculate the employer costs
As an employer, you don’t just pay employees’ salaries. There are also mandatory costs, such as holiday allowance and employee insurance, that you as an employer must take into account when hiring employees. These additional costs are called employer costs. Do you want to know exactly what an employee costs? You can easily calculate these costs.
Employer costs are the costs that an employer pays (in addition to the salary) for his employees: the things you pay on top of your employee’s salary. The wage costs vary due to personal agreements with employees and due to obligations regulated by a collective agreement or industry sector. In fact, the Dutch system obliges the employer to pay a lot of things for your staff.
In the Netherlands there are two types of employers’ costs: fixed (mandatory) and additional (optional), which add up to the total employers’ costs. We list them for you.
- Gross monthly salary
- Holiday allowance (8%)
- Pension contribution (optional)
- Employee insurance & healthcare contributions (± 20%)
- Expense allowances
What does an employee cost?
On the pay slip of an employee you often only see the gross-net calculation so you know how much salary you have to transfer to the employee. The salary package that we use offers the possibility of making the salary costs transparent. The costs for an employee are processed in the payroll administration. Expatax can perform this calculation for you if you outsource the payroll administration to us. This enables us to provide you with additional insight into the actual costs of your personnel.
However, in this article we would like to give you some insight already. You can easily calculate your employer costs to find out exactly what an employee costs. In doing so, it is a good idea to calculate each component separately and then add them together.
If you do not want to add up the amounts separately, keep the rule of thumb that on top of the wage costs another amount between 20% and 35% must be added to arrive at the total employer costs.
The first, and largest, part of the cost of an employee is the gross salary. These costs vary from employee to employee and are set out in a contract. When someone talks about the gross wage, it could be, for example, the gross wage per hour, per week or per month. To get a good estimate of the costs, it is best to start from the fixed gross monthly salary.
Note that often a gross salary based on 40 hours is agreed. In the case of a part-time employee, you should adjust the salary to the number of hours actually worked. Below is an example based on an agreed gross monthly salary of € 3,000 where an employee works 32 hours per week:
Example: (32/40) x € 3,000.00 = € 2,400.00
Your employees are entitled to vacation pay. When calculating the exact cost of an employee, you must take this into account. The holiday allowance is legally 8% of the gross salary (pro rata). You can choose to pay this out directly each month. Most organizations choose to pay out holiday allowance once a year in May. However, it does not matter for the costs when you pay it.
Example: € 2,400.00 x 8% = € 192.00
Pension contribution (optional)
It is not mandatory to have a pension plan for your employees if your organization does not fall under a collective bargaining agreement. Therefore, some employers will be able to skip this step. Does your organization fall under a collective bargaining agreement or have you provided a pension plan for your employees anyway? Then you can calculate it as follows.
The employer contribution varies. So check the amount of the contribution that you as an employer make to the pension plan, for example 10%. Also take into account the franchise, which is the part for which no contribution has to be paid. The full-time franchise (for example, € 15,000.00 on an annual basis) is divided by 12 and multiplied by the part-time percentage. In our example (€ 15,000.00/12)* (32/40) = € 1,000.00. You then calculate the pension premium over the gross monthly salary including holiday allowance minus the franchise.
Example: (€ 2,400.00 + € 192.00 – € 1,000.00) x 10% = € 159.20
Employee insurance and healthcare contributions
As an employer you are obliged to take out certain insurances for your employees. This concerns the following employee insurance schemes and the Healthcare Insurance Act (Zvw):
- WW/AWf (unemployment insurance)
- WAO/WIA (disability insurance)
- WGA/ZW-flex (disabilty/sickness insurance – depending on the business sector in which you operate)
- Zvw (healthcare contribution)
Note: you may have to pay a low or high AWf premium. The AWf contribution depends on the type of contract your employee has. In general, a low AWf contribution applies to an employment contract for an indefinite period that is not on-call. The low contribution also applies if your employee is younger than 21 and works a maximum of 52 hours per month or if your employee is following a bbl course.
How do you calculate the employee insurance & Zvw premiums? The costs for these premiums are often jointly between 19% and 24% of the gross salary including holiday allowance minus the pension premium.
Example: (€ 2.400.00 + € 192.00 – € 159,20) x 20% = € 486,56
It is important to also include the costs you incur each month outside of salary, holiday allowance and premiums. Think of travel expenses per kilometer, a train ticket or a telephone allowance. Draw up a list so that you do not forget anything and calculate per employee what these costs exactly amount to.
In the example below, the employer offers a travel allowance of € 150.00 per month and a telephone allowance of € 25.00 per month.
Example: € 150.00 + € 25.00 = € 175.00
Calculation employer costs
You have now calculated all the costs per item. Added together, these are the costs of an employee per month:
|Gross salary||€ 2.400,00|
|Holiday allowance||€ 192.00|
|Pension contribution||€ 159.20|
|Employee insurance and healthcare contributions||€ 486.56|
|Expense allowances||€ 175|
|Total employer costs||€ 3,412.76|
Of course, there are indirectly more costs that come with an (additional) employee. For example, you need to set up a workplace for your employee, you probably offer free drinks such as coffee or tea and you provide lunch. Does the contract also include a telephone, laptop or company car? If so, these are obviously additional costs for you as an employer.
You might insure the costs of sick leave in connection with the obligation to continue paying wages during the first two years of sickness and there are other insurances you take out for your staff. These costs can also be included in the calculation.
Contact us if you need help with your payroll administration!