Global Payroll and Benefits

How much does an employee cost?

Employee costs go beyond just salaries.
August 3, 2021
Oyster Team
How much does an employee cost?

If hourly wages in the US were the only measure of the cost of employment, decisions like whether to move IT, call centers, or customer service teams overseas would be simple. The notion that labor is more expensive in the US than in developing nations is not entirely untrue, though it depends partly on the state in which your organization operates.

Still, total employee costs go far beyond wages and salaries. To understand the actual cost of an employee, you have to look at other factors. This is especially true when hiring globally. To get a thorough understanding of what an employee costs, today we'll take a close look at the various expenses associated with labor in the US. Then, we'll compare that to employee costs in other nations. 

How much does it cost to hire an employee in the US?

Employees are expensive! Over a single employee's tenure at your organization, your company may pay for:

  • Recruitment advertising, background screening
  • Training
  • Traditional wages, overtime pay, bonuses, commissions, or similar
  • Federal employer payroll taxes 
  • Federal unemployment tax
  • State employer payroll taxes (including unemployment tax) 
  • Social Security and Medicare withholdings 
  • Required insurance, which may include group health insurance for Applicable Large Employers, professional liability coverage, and more 
  • Equipment or gear related to the employee’s function
  • Workers compensation

Those are some basic costs of hiring one US employee. Then, there are other work perks and benefits to consider. 

What other costs does an employer need to consider?

Your organization might offer vacation time, comp days, free gym memberships, cell phone allowances, and so on. Life and disability insurance is always a popular perk, as is ongoing education, advanced training, or tuition reimbursement. 

Health savings accounts (HSAs) are becoming more popular, and while pensions are no longer a standard among US businesses, a 401(k) or other investment option is usually desired by top talent. 

Those employee costs are all associated with luring and retaining top talent. Even if your team will be entirely remote, or working from home, there will still be considerable costs like:

  • New technology
  • Software updates
  • High-speed internet

In short, an employee earning $50,000 annually might cost your organization $75,000 per year or more! Now, let's get down to employee costs in other countries. In the meantime, if you'd like to know what an employee will likely cost in different parts of the world, try our free employee cost calculator.

How much does it cost to hire an employee in other nations?

The cost to hire one employee varies significantly around the globe. In developing nations, for instance, hourly wages are much lower than in the US. But those low labor costs don't always translate into savings for organizations looking to cross the border.

How much does an employee cost in Mexico?

At the time of writing, the minimum daily wage in Mexico is 141.70 pesos or about 7.10 USD. However, thanks to pressure from other nations, this is expected to increase by about 15% soon. But that's still a far cry from the US federal minimum wage of $7.25/hour for covered nonexempt employees (or some states with even higher minimum wages!). 

An American organization that moves its call center to Mexico, for example, could easily save 50% on employee wages and benefits.

But sometimes, these businesses find themselves losing that savings to onerous amounts of paperwork, and a government/legal system that is less favorable to companies trying to enforce the terms of their contracts. Put plainly, if an internet service provider (ISP) burns you in Mexico, you'll likely be spending a lot of money on legal representation, and the issue may not get resolved in your favor. 

Still, the low cost of access to educated employees in other nations can be alluring!

Screenshot of Oyster's employment cost index

Some countries offer an educated labor force at a lower cost

According to the World Economic Forum, the countries offering the most educated employees are:

  • Finland
  • Norway 
  • Switzerland
  • Canada 
  • Japan
  • Sweden
  • Denmark
  • Netherlands
  • New Zealand
  • And Belgium

But that doesn't mean these professionals work for low wages, or that they'll be any "cheaper" once we tally all the expenses of employing them.

Some nations have surprise labor expenses

In some Latin American and European nations, your organization will be expected to pay vacation bonuses, sometimes called "13th and 14th-month" bonuses. These bonuses are mandatory in countries like:

  • Belgium
  • Spain
  • Italy 
  • Greece
  • And many others

And they may not be mandatory, but these bonuses are customary in countries like:

  • France
  • Finland
  • Germany
  • Japan
  • Taiwan
  • And Singapore

Essentially, these extra earnings are about one extra month's wages. Depending on the country, they may be paid once or twice a year or split payments over the calendar year. These additional employee costs can add up quickly when hiring a new crew for a call center or server farm overseas. 

Now, a small business owner thinking about hiring overseas might next wonder: "What if I hire independent contractors instead of employees?" 

Contract labor vs. employees

A contract laborer—aka freelancer, gig worker, independent contractor—can be more affordable than an employee. They also tend to have specialized skills and training. And while this topic is worthy of an entire blog (and that's an article for another day), for now, it’s worth noting that, despite any potential cost savings, contract labor is not always the best choice when looking to engage workers overseas. Consider, among other potential issues, that:

  • An independent contractor may be able to end the contract at any time
  • They bring their tools to the job and work the hours they choose
  • Companies have no control over a contractor’s vacation schedule or the manner in which the contractor performs the work
  • An independent contractor’s availability may not align with your company’s needs

In some countries—where law enforcement may be lax at best and deeply corrupt at worst—companies have very little recourse should a contractor decide to leave the job half-done. And don't forget, there may be other fees associated with doing business globally.

What are some other considerations beyond labor costs?

When considering engaging overseas workers, your organization may need, among other things:

  • An attorney in that nation to help you with contract law or insurance issues
  • Bilingual staff to help with interpretations and interviews
  • A qualified professional well-versed in tax laws in that country
  • An understanding of local employment customs

In sum, the cost to hire and maintain one employee varies tremendously from one nation to the next, and there are many other costs to consider. If you'd like to learn more about hiring overseas, contact Oyster and explore our employment cost index today.

Disclaimer: This blog and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.

Learn more about Oyster's employment cost index, a fast and simple way to compare employment costs in different countries.

About Oyster

Oyster is a distributed HR platform designed to enable visionary HR leaders to find, hire, pay, manage, develop and take care of a thriving distributed workforce. It lets growing companies give valued international team members the experience they deserve, without the usual headaches or the expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll as well as great local benefits and perks.

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