Does the HR department pay more than the accounting department
Personnel costs & ancillary wage costs: calculate and plan correctly
Non-wage costs, do you associate them with confusing social security contributions and complex calculations? A typical accounting topic. High time for a new perspective: With a good overview of the ancillary wage costs and close cooperation with the CFO, you have the opportunity to reduce personnel costs and increase the quality of personnel planning. We say: own it!
With Personio's salary schedule you can see an overview of all salaries. Find out more here.
The personnel cost block is an extremely important factor for the profitability of a company. What salaries can we pay? What do social security and health insurance contributions cost? How much money do we have to invest in work equipment? In short, is it profitable for us to employ a (new) employee?
We are already no longer in the accounting department, but in the middle of the territory of HR managers: when recruiting employees.
When it comes to non-wage labor costs, HR people are sparring partners
Personnel work is a holistic matter - HR staff no longer work solely with tunnel vision on the precise formulation of new job advertisements or on meticulous vacation planning.
In my opinion, a holistic HR specialist should not only manage the recruiting process and the budget for employees, but also work with the CFO as a sparring partner in personnel planning.
Michael Kuntz, VP Finance & Legal at Personio.
If HR managers keep an eye on details such as ancillary wage costs, they can hire employees smarter and thus reduce expenses from the outset. But first things first: How are the personnel costs actually made up?
What are direct and indirect personnel costs?
By definition, personnel costs include all costs arising from the deployment of employees. So not only the gross salaries of the employees, but also the non-wage costs and the costs for voluntary social benefits.
Personnel costs can be broken down into direct and indirect costs subdivide. The direct costs relate primarily to wages, salaries and everything related to them.
To put it simply, direct personnel costs include:
- the gross salary as wages (workers) or salaries (employees)
- Secondary payments
- Benefits in kind
Indirect personnel costs are also called ancillary wage costs, additional personnel costs or ancillary personnel costs. They include all expenses that an employer incurs in addition to the gross salary for the employee.
Personnel costs are a strategic issue
What salaries can we pay and how many more employees can we employ? The answer to this largely determines the steps your company takes to grow. What HR needs for this is a good plan and effective HR scaling. Our whitepaper tells you how to do it.
The indirect personnel costs (non-wage costs) include:
- Employer contributions to social security
- Costs for job-related training and further education
- Other expenses, such as work clothing
- Taxes on the sum of the salary / wages or the number of employees
How high are the ancillary wage costs for employers?
In personnel cost planning, you can currently assume a flat rate of around 21% of additional costs per employee who is fully subject to social insurance.
Personio VP Finance & Legal, Michael Kuntz
An employee is therefore significantly more expensive than it appears at first glance. But how much does an employee really cost (gross employer)? And how can the personnel costs be calculated? HR managers who deal with payroll should know the current contributions.
Contribution rates for wage calculation
Non-wage costs are made up of four different pillars, with social security contributions making up the largest share. It is precisely these that are regularly re-established by the federal government. In order to calculate the employer's contribution correctly, you need to know the most important current contributions. These are calculated as a percentage of the gross income of your employees.
1. Employer contributions to social security
|Health insurance||14.6% (7.3% each employer (AG) and employee (AN))|
|care insurance||3.05% (each 1.525% AG and AN)|
Saxony is the exception. AN: 2.025%, AG: 1.025%
|unemployment insurance||2.5% (each 1.25% AG and AN)|
|Pension insurance||18.6% (9.3% each AG and AN)|
Miners' pension insurance is the exception, here the contribution is 24.7% (AN 9.3%, AG pays the rest)
|Accident insurance||Depending on the accident risk (contributions are only borne by the client)|
|Insolvency levy||0.06%, only borne by the AG|
2. Costs for vocational training and further education
3. Other expenses
- Recruitment costs
- working clothes
- Moving costs
4. Taxes on wages or salaries or the number of employees
Where are the contribution assessment limits?
So that it is not unattractive to hire new employees in well-paid positions, the employer's contribution to non-wage costs is capped. This means that the employer does not have to pay any social security contributions for the part of the gross wage that exceeds the income threshold.
Incidentally, the contribution assessment ceilings are different in the old and new federal states. There are deviations in the pension and unemployment insurance as well as in the taxes for miners' unions.
For example, the income threshold for pension insurance in the former East Germany is 6,700 euros per month, whereas in the new federal states it is 6,150 euros per month. By 2024, the values in the east are to be gradually adjusted to those in the west.
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What happens if employees are absent due to illness?
If employees are sick for a longer period of time, the smaller company in particular hits hard - that's why there is an U1 levy: employers can use it to get back wages from the health insurances. These reimburse between 40 and 80% of the salary for the employee and up to 80% of the employer's share for social security. To ensure that the financial burden does not threaten their existence, paid coverage is required by law for companies with fewer than 30 employees.
How do you calculate the non-wage costs?
You now know a great deal about non-wage labor costs. How you put yourself together, how high the individual contributions are and from what amount the costs are legally limited. In the HR department, this information is usually only available to the department that is responsible for payroll. But modern HR work is comprehensive. And that's exactly why you should know how to calculate correctly.
The information you need for this is:
- the gross salary
- the employee's tax class
- the state
- whether the employee is subject to church tax
- whether he or she can claim child allowances
A small example:
Your single employee at the Munich location earns a gross salary of EUR 3,400 a month. Then you pay about 264 euros to your employee's health insurance every month, about 316 euros are paid to the pension insurance, unemployment and long-term care insurance add up to 43 and 52 euros respectively. In total, you have to add around 675 euros in non-wage costs to your employee's salary.
Two clever tricks to reduce non-wage labor costs
You shouldn't be deterred by non-wage labor costs from hiring new, qualified employees. After all, dedicated team members are the most important competitive advantage for companies. But with higher salaries, the ancillary wage costs also rise. This is where trick number one comes into play.
1. Use tax-free or lump-sum tax benefits
Of course, employees don't just get paid in benefits such as vouchers. But they are a useful addition to salary negotiations. Benefits and benefits in kind include, for example
- Vouchers for food, gym, etc.
- Childcare grants
- Adoption of health-promoting measures
Practically: Since the benefits are not taxed or only taxed at a lump sum, employees receive them in full. The employer, on the other hand, saves ancillary wage costs.
With trick number two you can secure yourself and your team low-cost support at work.
2. Hire working students
No, we are not suggesting that you exploit students as cheap labor. Certainly not. But if you have interesting areas of responsibility in which properly enrolled students can give your team a helping hand, it can be worthwhile for everyone to work together. For student workers who work a maximum of 20 hours per week, there are hardly any ancillary wage costs. Only the pension insurance has to be shared between the employer and the student trainee at a percentage of 9.3% each.
For comparison: For mini-jobbers who are not allowed to earn more than 450 euros per month, the employer has to pay lump sums of around 30%. Long-term care and unemployment insurance, on the other hand, are free of charge.
Increase the quality of personnel planning
Modern personnel work has declared war on silo thinking. Today, HR managers can get involved in all areas of the company that affect employees. After all, it is you who bring the expertise to the table! By obtaining targeted information and working with other departments, you have the opportunity to actively help shape personnel planning. This increases the quality of personnel planning and at the same time makes the company a bit more productive.
We draw your attention to the fact that our website is for non-binding information purposes only and does not represent legal advice in the true sense of the word. The content of this offer cannot and should not replace individual and binding legal advice that addresses your specific situation. In this respect, all information provided is without guarantee of correctness and completeness.
The contents of our website - especially the legal articles - are researched with the greatest care. Nevertheless, the provider cannot accept any liability for the correctness, completeness and topicality of the information provided. In particular, the information is of a general nature and does not constitute legal advice in individual cases. Please consult a lawyer to resolve specific legal cases.
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