2023 Trend: The Rising Price of Employer Costs for Employee Compensation

Employers typically budget for much more than the actual salary per hour they pay their employees, no matter the industry. When calculating employee cost on top of the base salary, benefit costs can make up a significant percentage of the total compensation, depending on the number and type of benefits an employer offers, as well as company policies. And that doesn’t consider the costs of recruitment and other indirect expenses an employer may incur.   

The U.S. Bureau of Labor Statistics (BLS) releases quarterly indexes measuring national trends and changes over time in employer costs for employee compensation. The data covers civilian workers, private industry workers, and state and local governments. The BLS does not include self-employed and remote household workers, the agricultural sector, and federal government workers under these categories. 

To get an idea of employer costs, let’s look at numbers provided by a recent National Compensation Survey, which includes data on average employer costs for wages and salaries as well as benefits per hour worked. 

Breakdown of employer costs 

Based on data from June 2022, wage and salary costs for civilian workers accounted for 69% of total employer costs for compensation, with benefits accounting for 31%. 

If we look at the total employer compensation costs for workers in private industry, wage and salary costs accounted for 70.5 % of employer costs, and benefit costs for 29.5%. For state and local government employers, wages and salaries accounted for 61.7% of total compensation costs, and benefit costs for 38.3%.

Breaking it down even further, benefit costs differ within private industry. Benefit costs per hour worked for union workers accounted for 40.2% of total compensation costs and for nonunion workers 28.2% of total compensation costs. 

Establishment size also makes a difference for employers, with benefit costs per hour ranging from 24.8% of total compensation costs for companies with 1-49 workers to more than 35% for companies with 500 workers or more.

Compensation costs of private industry cannot be directly compared to state and local government, due to differences between the sectors in the work activities and occupational structure, which classifies types of occupations into different categories according to activities.

Employee/fringe benefit categories 

Employer spending on employee benefits can change due to the rising costs of different types of benefits. There are five major categories, with a total of 18 different benefit costs, with different percentages of the total employer costs for employee compensation per sector. These include paid leave, supplemental pay, insurance (life, health, and disability), retirement and savings, and legally required benefits, such as social security, Medicare, workers’ compensation, and federal and state unemployment insurance. 

Keeping up with employer cost trends

The variability of changes over time, shifting trends and other factors may affect employer costs, not to mention their bottom line – such as different benefit plans and cost-sharing agreements between employers and employees, company policies, and various industry groups. 

To ensure accurate calculation and tax compliance, organisations must maintain reliable and efficient processes to manage tax reporting that can consider different industry standards and compensation packages.