How to Calculate the Percentage of Salary to Benefits

A business that cannot afford to match a base salary offered by a competitor can often make up the gap with the benefits package that it can offer. Informing a potential candidate of the percentage of salary the company pays towards benefits is an effective negotiating tool during the hiring process, and highlights the value of the total compensation offered. It is also important for a company to know the average "benefits load" percentage -- the total value of an employee's benefits, expressed as a percentage of salary -- to enable accurate budgeting when considering adding a new position.

Instructions

1. Identify each specific component that you will include in the benefits calculation. No single standard method exists. For example, the Bureau of Labor Statistics considers paid leave such as vacation as a benefit, whereas other agencies count it as a part of the salary. Typical benefits included in the calculation can be health insurance, dental plans, vision plans and retirement.

2. Add together the annual costs of each fringe benefit to get a total yearly benefits expense. For example, if you decide to calculate vacation as a benefit, and your company provides employees with 10 days of vacation per year, add the cost of 10 days of salary to the other benefits costs, such as the employer's contribution toward the employee's pension.

3. Divide the total yearly benefits expense by the employee's annual salary to calculate his individual benefits as a percentage of salary. For example, if the employee's benefits total $26,000 per year and his annual salary is $74,000, the benefits load is 35% (26,000 / 74,000 = 0.3513).

4. Calculate the average benefits load for all employees by taking the total annual amount spent by the company on benefits, and dividing it by the total annual amount spent on salary. Use actual data for the fiscal year so that you won't need to worry about accounting for the number of employees on the books at any particular time. Using annual data also takes into account monthly fluctuations in benefits expenditure. For example, a total yearly benefits expense of $240,000, divided by an annual salary expenditure of $900,000 equals a rounded benefits percentage of 27% (240,000 / 900,000 = 26.6666).

5. Use the average benefits load for employees to approximate the total cost of a new hire, by multiplying the salary for the position by the benefits percentage to get the total compensation figure. For example, if the position will earn a $50,000 salary, multiply this by the average benefits percentage of 27% to get a total annual compensation amount of $63,500 (50,000 x 1.27 = 63,500). You can also use this information to help a potential new hire approximate the total value of the package you are offering.

Tips & Warnings

• Divide the amounts by 2,080 to express the expenses as an hourly rate.

References

• District of Columbia Office of Contracting and Procurement: Sample Calculations -- Simplified Basic Calculations for Developing Fully Loaded Hourly Rates
• City of San Diego: Review of Fringe Benefits Rate
• Bureau of Labor Statistics: Glossary
• University of California, Riverside: Office of Research -- Employee Fringe Benefit Information and Guidance
• Oak Ridge Institute for Science and Education: Fringe Benefits