# How to Calculate the Cost of Fringe Benefits

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Offering fringe benefits -- benefits on top of salary, such as health insurance or sick leave -- is necessary to attract the best employees in today's economy. However, these benefits are often very expensive and their pricing is complex. It is important to know exactly how to calculate the cost of these benefits in order to understand which benefits to offer and how much they affect your bottom line.

### Things You'll Need

• Full accounting sheet for your company
• Copy of last year's tax return

List out all the fringe benefits your company offers.

Be generous with this. List out any and all insurance your company offers, like health, dental, vision and life, as well as other incentives to attract employees. If you offer matching 401k contributions or pay the cost to manage retirement funds, list that. Also include any leave programs, such as sick days and paid vacation.

Calculate the total cost of these benefits.

You should be able to see this from your accounting sheet. For instance, how much did you pay (per employee) to your health insurance company? What about dental? How much did you contribute to your employees' 401k plans?

To calculate the cost of leave time, use the opportunity cost of what the employee could have made for you had she been working. For instance, if you offer five days of sick leave each year, and your employee generates \$100 in profit per day, then the cost of sick leave is \$500.

If you offer to buy out accrued leave time, factor this in as well.

Calculate any savings or repayments for these benefits.

Many fringe benefits come with large tax incentives. Check your tax return from last year to see how much you save by offering health insurance, for instance.

Many employers also require their employees to pay a fraction of the cost of these benefits. If your employees are required to pay 10 percent of their dental insurance, for instance, and this money is garnished from their wages, add that in as well.

Subtract the total savings in Step 3 from the total cost in Step 2.

This final number will be the real, actual cost to you for your fringe benefits.

For instance, if you pay \$10,000 per employee for fringe benefits, but you gain \$2,000 a year in tax savings and employee contributions, then your net cost for benefits is \$8,000.

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