16 August 2010

No Hire No Cry

The article I am going to refer to was written last week and is a perfect, albeit anecdotal, explanation of why unemployment continues to be high in the U.S. Michael Fleischer is a business owner in New Jersey, and he breaks down the high cost of maintaining and increasing his employees:

Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally.
Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers' comp and $505 for state unemployment insurance. Finally, the feds make we pay $856 for Sally's Medicare and $3,661 for her Social Security.
When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits. Bottom line: Governments impose a 33% surtax on Sally's job each year.
This is a real dilemma for business owners in a high uncertain environment. I find his closing comments compelling:
And even if the economic outlook were more encouraging, increasing revenues is always uncertain and expensive. As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company's vulnerability to government decisions to raise taxes, to policies that make health insurance more expensive, and to the difficulties of this economic environment.
A life in business is filled with uncertainties, but I can be quite sure that every time I hire someone my obligations to the government go up. From where I sit, the government's message is unmistakable: Creating a new job carries a punishing price.


A.J. said...

33%? That is it? That is quite cheap. Most bigger businesses and universities have overhead of equal amount of the salary. I know this is an anecdote for small business, but big business is not hiring due to a lack of demand for our products. When that turns around, overhead will not keep them from hiring.

Jlowryjr said...

Do you think the regulatory environment plays a role? I know if demand is strong enough, it won;t matter as much, but in this environment governmental involvement seems a larger influence than at other times.

A.J. said...

Not sure ... we get tax breaks as well which allow us to hire when we might not ... so hard to say. I feel for the most part we do a good job balancing it out and making money ... but again, large corporation, not small operation.