Here’s a novel exercise: Ask your employees to gather all the binder clips in your office that aren’t currently being used and put them in a box in the supply area. You’ll likely collect hundreds if not thousands of unused clips. It’s also very likely that, while so many unused binder clips were scattered around your office, many new boxes of clips were purchased when employees couldn’t find them in the supply area.
The excess expenses related to being an employer stay hidden in your company like binder clips because waste can’t be discovered until you go looking for it. It’s possible, however, that by scrutinizing and better classifying your costs, you could reduce expenses related to employment significantly.
Smart Business spoke with William F. Hutter, CEO of Sequent, about how looking closer at employment-related expenses could save companies considerable money.
How does improper categorization lead to greater expenses?
It’s becoming critically important as employers’ costs increase to look for new ways to save money. It’s often the case that expenses directly related to employees are inadvertently hidden in the profit and loss statements, because they are improperly categorized.
Employers tend to look at taxes, workers’ compensation and health insurance and mistakenly believe that’s all of the employee expenses they have. In truth, for every dollar spent on wages there are costs over and above those that employers either can’t or choose not to identify. For instance, let’s say an employer pays for an outside expert to help with Affordable Care Act (ACA) reporting requirements. Where does that expense get tallied? Often it’s reported as a one-time vendor expense, but it’s really an employee expense.
As compliance issues continue to pile up, it will become more important to identify these expenses.
What do employers miss when it comes to the cost of employment?
There are many expenses directly related to employees that are often improperly classified. Those can include:
- The cost of new hire reporting to the state to determine if there are wage garnishments that should be served against new employees.
- Training, whether mandated or required.
- Employment records management.
- Recruiting efforts.
- Unemployment or workers’ compensation hearings.
- Records storage.
- Employee Retirement Income Security Act compliance work.
- Creating plan documents.
- Required ACA notifications that must be printed and mailed to employees.
Depending upon the source cited, the cost of being an employer and meeting all the compliance guidelines could be $5,000 per employee. Knowing the source of those expenses is the first step to bringing those costs down.
How can employers better account for all employee-related expenses?
Companies seem willing to spend a lot of time negotiating the lease for their copiers, scrutinizing it down to what they pay per page printed to try and save as much as possible. But considering that employee expenses, including wages, are likely 60 to 70 percent of a company’s gross profits, it would appear that it’s a better use of resources to identify the sources of those expenses and work to control them.
To get a better sense of what is being spent on employees, identify the areas of spending so the costs can be managed. Many times those spending areas are spread across multiple areas or even among several vendor relationships, so employers need a strategy to manage that in a comprehensive fashion.
Very large companies have vendor management departments, which may or may not be an internal department — it could be contracted out to an independent company. These exist so these companies can begin to control all the various expenses that go out of the building by multiple decision-makers spent with third parties. While your company may not have the resources for such a dedicated department, committing time to equating specific costs to employee expenditures gives credence to the task. Identifying expenses can help a company better manage them.
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