How to Calculate Payroll Burdens

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Payroll burdens are the cost of the employee during a payroll cycle. This cost includes employee benefits, employer insurance and employer taxes. Employer taxes include the matching Social Security and Medicare, Federal Unemployment and State Unemployment tax. Payroll burdens do not include the taxes paid by the employee, only the employer's portion.

Things You'll Need

  • List of employee's wage and benefit information
  • Workers Compensation Policy
  • Health and dental premiums by employee
  • Union benefit percents
  • Employer matching amounts

The calculation for payroll burden begins with the hourly wage of the employee. When calculating the burden for salaried employees, divide the annual wage by 2080 hours. These are the hours based on a 40 hours week: 52 weeks x 40 hours = 2080 hours.

Workers compensation insurance is based upon employee classification. Separate employees by classification and calculate the cost of each, or divide the premium amount by the total payroll dollars of the workers compensation insurance. For example, Premium $5,500 / Annual payroll of 100,000 = .055

Paid Holidays: divide the number of paid holidays by the number days worked annually. Use the number of weeks x 5. This is 52 weeks x 5 days = 260 days annually. For example, 10 holidays / 260 = .038

Vacation: divide the number of vacation days by the annual days worked. For example, 10 days / 260 = .038

Medical Insurance: Calculate the annual medical premium paid on behalf of the employee. Divide this by the annual wage. For example, 350 monthly x 12 = $4,200 divided by $55,000 = .076

Union employers have additional contributions for employer-paid union benefits. Calculate these using the above examples.

The percent for the federal employer tax is .0765. The Federal Unemployment is .008. The State Unemployment rate is assigned individually to the employer by the state. For this example, the rate given is .027.

Total the individual percents. Starting with Workers Compensation, .055 + .038 + .038 + .076 + .0765 + .008 + .027 = .3185, or 31.85%. Multiply the individual employee hourly wage times 31.85%. For example, $15.00 x .3185 = $ 4.78 hourly burden.

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