What does an employee really cost?

If a role is advertised at $80,000 a year, your business needs more than $80,000 to employ that person. The right budget depends on the role, award or agreement, working pattern, location and entitlements. Work those out before making an offer.

Build the cost in layers

Start with the wage for the actual hours and pay conditions. Add employer superannuation where required. Then budget for applicable paid leave, workers compensation, payroll administration, equipment, software, training and the time needed for a new person to become productive. Some costs vary by state or territory and business size.

For a planning illustration only, $80,000 in wages plus 12% entered super ($9,600) and $8,000 in other estimated costs totals $97,600. The $8,000 is an assumption, not a standard allowance; it may be too low or too high for your business. The employee cost planner lets you enter your own figures. Check the current obligations with Fair Work, the ATO and your payroll adviser before relying on the result.

Check whether the work will pay for itself

A new employee may let you serve more customers, improve quality or free the owner for sales. Estimate what must change for the hire to work. A workshop might expect an extra 12 billable jobs a month. If each job contributes $250 after its direct costs, that is $3,000 toward wages and overhead, not $3,000 net profit. Compare it with the full monthly cost and allow for quiet weeks, training and rework.

Add the position to the business budget and the cash-flow forecast. The budget tests whether the role can support profit over time. The forecast tests whether the business can pay on the actual payroll and super dates. These are different questions.

Check the employment setup

Use the Fair Work Ombudsman’s current guidance to identify the right employment type, award or agreement, minimum pay, leave and record-keeping requirements. Super rules and timing have changed, so do not rely on an old spreadsheet or memory. An accountant or payroll specialist can help with payroll setup; seek employment advice where classification or entitlements are unclear.

Important things to know

• Calling someone a contractor does not decide their legal status or remove possible super obligations.
• A salary figure alone does not tell you whether a role is affordable or correctly paid.
• The example is a planning calculation, not a pay determination or legal advice. Verify current obligations for the person and role before hiring.