Hiring a new employee involves more than just their salary. To ensure your company’s financial health, it’s essential to understand and optimise all related costs. Let’s break down what you need to consider when hiring an employee in Finland.
Understanding Personnel Costs
Personnel costs encompass all expenses related to your employees and their employment. This includes not only salaries but also recruitment, pensions, and sick leave. Essentially, any cost associated with your employees falls under personnel costs.
Beyond the Salary: Additional Employee Costs
When you factor in all expenses, the total cost of an employee can be approximately 30-50% more than their salary, sometimes even higher. Here are some key costs to consider:
- Salary and Benefits
- Insurances:
- Pension insurance
- Health insurance
- Accident insurance
- Unemployment insurance
- Group life insurance
- Occupational Health Care
- Travel and Accommodation Expenses
- Bonuses
- Recreation Budget (e.g., Christmas lunch)
- Staff Gifts
- Work Clothes
- Lunch, Activity, Car, and Housing Benefits
- Work Equipment (e.g., computers, phones) and Connections
- Training and Courses
- Holiday Pay
- Sick Days, Holidays, Compensatory Leave, Parental Leave – Productivity Loss
- Recruitment Costs
- Orientation
- Payroll Processing
Read also: How to Choose Employee Benefits?
Salaries as Part of Personnel Costs
Salaries can be the largest expense in your company’s financial statements, depending on the industry. When you hire an employee, you negotiate their salary, but remember that part of the personnel costs, such as social security contributions, are deducted from the salary. This calculation is typically done during payroll processing. As an employer, it’s your responsibility to ensure your employees receive the correct salary on time and that you manage personnel costs effectively.
Annual Employee Costs
Estimating the exact annual cost of an employee can be challenging. It varies by industry, employment contract, and unexpected costs like illness. Additionally, you need to define which costs are considered personnel costs. For example, is recruitment a personnel or HR cost? Should administrative costs be included? And should you consider future termination costs now?
Most personnel costs are fixed, but they can vary based on your company’s circumstances. This variability can make both small and large companies vulnerable, so it’s crucial to be vigilant when calculating these costs.
High-quality BI tools can help you accurately assess the need for substitutes during holiday periods and their costs.
Reducing Personnel Costs
As an employer, you can deduct salaries and related social security contributions, pension contributions, and other statutory payments from your company’s taxable income. Therefore, optimising your taxation is important to get the full deduction for your personnel costs.
You can also reduce costs by outsourcing tasks that are not part of your company’s core activities, such as cleaning, cafeteria services, IT, payroll processing, accounting, and HR. Learn more about how we can help manage your company’s accounting, payroll, and HR.
Alternatives to Hiring a New Employee
In some cases, it may be more cost-effective to use an interim consultant or substitute instead of hiring a new employee. Our guide explains the benefits of a project-based resource model and employment, how the temporary recruitment process works, and when it makes sense to use temporary help.
FAQ - Frequently Asked Questions
What Does an Employee Cost?
As a rule of thumb, personnel costs, in addition to salary, account for 30-50% of the total costs you should consider when calculating personnel costs.
What Do Personnel Costs Cover?
Personnel costs include all expenses related to hiring employees. The most significant cost is the salary itself, but it can also include Christmas lunch, work clothes, or payroll processing fees.
What Is an Interim Expert?
Interim consulting means hiring an interim consultant to solve a specific task or fill a temporary position in your company, instead of hiring a new, permanent employee.
Need Help or Advice?
If you need assistance or advice regarding your company’s personnel costs, our HR experts are here to help.
