What constitutes employee cost or cost to the company (CTC)?
Employee cost consists of every conceivable incurred cost in maintaining an employee.
Components of Cost. Employment costs fall into several broad categories:
Recruiting Expenses: Finding technically qualified people who can function effectively in a rapidly growing start-up venture is not easy task. Devote the time to make sure that your hires are as close to perfect as possible. Anything less will be a drag on your business.
Basic Salary: Basic salaries vary all over the place depending on the industry and a variety of other factors. There are data, which can help you calibrate an appropriate base salary. Be sure to establish rational salary ranges given your growth plans. This means that in most - cases there should not be great salary differentials between early hires and later employees - any "risk component" of being an early hire should be made up in the equity compensation component.
Employment Taxes: In preparing your personnel budget be sure to include allowances for social security.
Benefits: Basic salary and employment taxes are a minimum - in most cases you will need to provide some benefits. Typical benefits include life insurance and health coverage. Other benefits could include long-term disability insurance, dental plans, dependent care assistance, tuition reimbursement, retirement plans etc. These involve actual payment of benefits by the employer. There are also "self - funded" plans where the employer - contribution is the administrative costs - e.g. vacation is another cost but is subsumed in the basic salary.
Unless you are hiring traveling salespeople, you need to provide some physical space to house the new employee. Obviously the rent per square foot varies depending on the fanciness and location of the facility. But how many square feet does an employee need? Again this varies but there are some guidelines. Work cubes are typically 8' x 8' in size and private offices range in size, in high tech figure on 225 to 250 square feet per employee when you add in common space
Other Equipment: The basics these days for high tech or office workers has to include a computer and telephone. Even with decreases in PC prices, figure for a computer, for software and for telephone handset on average when you factor in installation. Don’t forget the periodic expensive upgrades you will need to your LAN and voice mail systems.
Other Approaches: Instead of figuring out each cost component separately you can develop some simple metrics. For example a different metric for planning the manufacturing side of the business. It takes some time to really understand the cost components of business segments in order to develop the metric and the underlying assumptions need to be recalibrated periodically.
Hiring is always a difficult and important activity, especially in a rapid growth business. There is always too much to do and often the new entrepreneur has little experience in hiring. It is the rare case when you can hire exactly to meet your needs. Delay in hiring and you will have trouble meeting your plan, hire too quickly and you may burn through cash before revenue catches up. Consider using independent contractors to cover peak periods if your business does not have too steep a learning curve. Although you can’t control the hiring process exactly you can understand the economic metrics of what you are doing and that can help you avoid some really unpleasant results.
Employee cost consists of every conceivable incurred cost in maintaining an employee.
Components of Cost. Employment costs fall into several broad categories:
Recruiting Expenses: Finding technically qualified people who can function effectively in a rapidly growing start-up venture is not easy task. Devote the time to make sure that your hires are as close to perfect as possible. Anything less will be a drag on your business.
Basic Salary: Basic salaries vary all over the place depending on the industry and a variety of other factors. There are data, which can help you calibrate an appropriate base salary. Be sure to establish rational salary ranges given your growth plans. This means that in most - cases there should not be great salary differentials between early hires and later employees - any "risk component" of being an early hire should be made up in the equity compensation component.
Employment Taxes: In preparing your personnel budget be sure to include allowances for social security.
Benefits: Basic salary and employment taxes are a minimum - in most cases you will need to provide some benefits. Typical benefits include life insurance and health coverage. Other benefits could include long-term disability insurance, dental plans, dependent care assistance, tuition reimbursement, retirement plans etc. These involve actual payment of benefits by the employer. There are also "self - funded" plans where the employer - contribution is the administrative costs - e.g. vacation is another cost but is subsumed in the basic salary.
Unless you are hiring traveling salespeople, you need to provide some physical space to house the new employee. Obviously the rent per square foot varies depending on the fanciness and location of the facility. But how many square feet does an employee need? Again this varies but there are some guidelines. Work cubes are typically 8' x 8' in size and private offices range in size, in high tech figure on 225 to 250 square feet per employee when you add in common space
Other Equipment: The basics these days for high tech or office workers has to include a computer and telephone. Even with decreases in PC prices, figure for a computer, for software and for telephone handset on average when you factor in installation. Don’t forget the periodic expensive upgrades you will need to your LAN and voice mail systems.
Other Approaches: Instead of figuring out each cost component separately you can develop some simple metrics. For example a different metric for planning the manufacturing side of the business. It takes some time to really understand the cost components of business segments in order to develop the metric and the underlying assumptions need to be recalibrated periodically.
Hiring is always a difficult and important activity, especially in a rapid growth business. There is always too much to do and often the new entrepreneur has little experience in hiring. It is the rare case when you can hire exactly to meet your needs. Delay in hiring and you will have trouble meeting your plan, hire too quickly and you may burn through cash before revenue catches up. Consider using independent contractors to cover peak periods if your business does not have too steep a learning curve. Although you can’t control the hiring process exactly you can understand the economic metrics of what you are doing and that can help you avoid some really unpleasant results.
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