Whether you’re a CPA advising a client, or a business owner concerned about your company’s profitability, it’s important to understand the value of your workforce, or exactly how much money is spent on employee compensation. An organization’s workforce is arguably its greatest asset, it’s also its most costly.
By having an accurate understanding of labor costs you can better plan for annual wage increases and additional headcount as your business grows.
What is a Total Compensation Statement?
A simple way to educate is to prepare a total compensation statement for each employee. An employee’s salary is only part of the picture. You also need to determine how much is spent on health/dental/vision insurance, paid time off, retirement benefits, relocation expenses, etc. You will find that the true cost of an employee is somewhere between 120 and 140% of their gross base wages.
A total compensation statement outlines the complete pay package awarded to an employee on an annual basis, including both direct and indirect compensation. According to SHRM, direct compensation can be defined as “all compensation (base salary and/or incentive pay that is paid directly to an employee.”
Indirect compensation is “compensation that is not paid directly to an employee and is calculated in addition to base salary and incentive pay.”
Calculating the Value of Your Workforce
In order to calculate total compensation, your first step is to gather the following information:
- Salary/hourly rate
- Stock options/grants
- Social Security contributions
- Flexible spending account information
- Paid leave—including vacation/sick/PTO, holiday, personal, bereavement, military pay, jury duty, etc.
- Insurance—including health, dental, vision, life, disability, etc.
- Employee assistance program
- Retirement benefits—include 401(k)/403(b), pension plans, etc.
- Educational assistance programs
- Wellness rewards
- Relocation expenses
Start Spreading the News
Once you have calculated your employees’ total compensation, share it with your employees. After all, what’s the point of offering competitive salaries and benefits packages if your employees don’t know about it. Your employees will likely be surprised to find out how much is paid out in other benefits in addition to their salaries.
As benefit premiums increase, while salary increases taper off, a total compensation or “rewards” statement can provide reassurance to an employee of the company’s financial commitment to them.
Don’t just share during open enrollment, consider making them a part of new hire orientations and performance reviews. Communicating this information while promoting a culture of transparency can raise morale and increase loyalty to your company. Revealing total compensation packages and communicating how much you have to offer to prospective job candidates can also be helpful when it comes to recruiting.
The Benefits of an HRIS
Many employers don’t offer total compensation statements because of the headache involved in putting them together. Tracking down all the information and manually inputting it in to spreadsheets can be time-consuming and lead to inaccuracies and redundancies.
Technology found in many HRIS systems can now integrate all the information, which simplifies the process of capturing the data through one database, and calculating it in real time.
If you do not currently have an HRIS, or not satisfied with the one you have, then it’s time to consider Balance Point. Our state-of-the-art, cloud-based HRIS can help in the preparation of total compensation packages and much more!
A single point of contact, who is also a Certified Payroll Professional, will help you every step of the way and ensure your organization is onboarded methodically and successfully. Schedule an appointment with one of our Workforce Management Consultants today.