Understanding your staffing expenses is essential for managing your finances, cutting expenses, or optimising efficiency where possible. A significant but often less visible component of these costs is ‘additional employment costs.
Additional employment costs often represent a substantial portion of the cost of a worker overall, these include training costs, travel allowances, and sick pay. Below, we provide an overview of these costs, explain how to calculate them, and share tips on reducing them by integrating a flexible staffing strategy.
What are additional employment costs?
Employment costs consist of various elements that, when combined, show the gross worker cost of your workforce. The breakdown of these costs depends on the type of worker or contract. Additional employment costs primarily apply to permanent workers, while different rules apply to agency workers and freelancers, which we will discuss later.
Mandatory additional employment costs for in-house employees
For in-house employees, within these additional employment costs, some expenses are legally required. The most common mandatory costs include:
- Holiday pay – at least 8% of gross annual salary.
- Social security contributions – compulsory company-paid contributions, such as unemployment insurance and state pension contributions.
- Sick pay – at least 70% of the last earned wage for up to two years.
- Pension contributions – depending on the collective labour agreement (CLA) applicable to your business.
But how much does a worker cost a business, beyond these mandatory expenses? We categorise these costs into two types: supplementary costs and hidden costs. Below, we explore both categories and provide tips on reducing your additional employment cost.
Supplementary costs for in-house employees
Supplementary costs are additional expenses that arise when hiring in-house employees. These include:
- Recruitment costs: Posting job vacancies, attending career fairs, working with recruiters, and the time spent on hiring and rehiring due to mismatches.
- Administrative onboarding costs: Background checks, paperwork, payroll setup, and enrolment in benefits schemes.
- Worker benefits: Bonuses, company cars, or travel allowances. The average cost of worker benefits can represent a significant outlay for permanent employees.
- Training costs: Induction and ongoing development, including courses and workshops.
- Ongoing worker expenses: Annual bonuses, gifts, uniforms, licences, company events, and team-building activities.
- Upskilling and training: Continuous investment in worker knowledge and skills.
- Administrative overheads: Payroll tax processing, pension contributions, and benefits administration.
These supplementary costs do not appear directly on a payslip but significantly contribute to the overall employment cost. They are important to consider, especially when looking for cost-saving opportunities.
However, many businesses find that once they identify these supplementary costs clearly, they can pinpoint new ways to optimise processes and create a more responsive staffing model.
How to reduce additional employment costs
Supplementary and hidden employment costs can quickly escalate and take up a large portion of your budget. Fortunately, you can reduce these costs by implementing a strategic workforce plan and integrating flexible staffing.
Flexible staffing strategy
Instead of relying solely on in-house employees, consider adding an on-demand, flexible layer to your workforce strategy. This enables you to scale up with temporary or flexible workers during peak seasons or busy periods. Since these workers are not on fixed contracts, you only incur costs when necessary, eliminating many additional or hidden employment costs.
Flexible workforce via Temper
Using the digital platform Temper, you can quickly and easily find qualified flexible freelance who fit seamlessly into your team and workflow. Simply post a shift and select from qualified professionals. You only pay a transparent hourly rate for the hours worked, giving you full cost visibility.
Enjoy flexible scheduling without the constraints of fixed hours, and easily tap into a pool of reliable, motivated freelance professionals whenever you need them. Satisfied with a freelancer? Add them to your Flexpool. When you post a new shift, these freelancers will have first access.
Discover more about Temper or sign up for free.
Conclusion
Employment costs extend beyond salaries. In addition to gross wages, additional employment costs play a significant role, varying depending on the type of worker. For in-house employees, these costs include mandatory expenses, supplementary costs such as onboarding and benefits, and hidden costs like sick pay and redundancy fees.
When evaluating how much does it cost to recruit an employee, it’s essential to factor in not only wages but also these supplementary and hidden expenses. With agency workers, you typically pay a markup on top of the hourly rate; with freelancers via Temper, you pay only the agreed hourly rate plus a standard platform fee—no unexpected bills.
By adopting a strategic, flexible approach—mixing permanent workers with freelancers or agency workers—you can manage your employment costs overall, ensuring stable operations while remaining agile. This is key to maintaining a healthy bottom line and a responsive workforce.
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