Burdened Vs Unburdened Payroll

Unburdened payroll refers to the gross, or base, compensation you pay to your employees for services rendered. It does not include any hidden costs. Burdened payroll includes your real payroll cost for your employees, including your liabilities as an employer.

To arrive at your unburdened payroll cost for hourly employees, simply multiply their hourly pay rate by their work hours. For salaried employees, the base salary is your unburdened cost. Unburdened payroll does not include your tax obligations as an employer or your payments toward employee benefits.

Burdened payroll includes the amount you pay for each employee beyond gross compensation. This includes payroll taxes such as Social Security tax, Medicare tax, and federal and state unemployment taxes. Depending on your state, you may be required to pay an employment training tax, local payroll tax, state disability insurance and worker’s compensation. Payroll burden also includes your portion of employee benefits such as for health and life insurance; cell phone costs; tools and equipment usage; uniforms; retirement benefits; training and seminar fees; bonuses; company vehicle usage and maintenance; and meals, snacks or entertainment costs.

To figure the true payroll cost of an employee, add your unburdened payroll cost to your burdened payroll cost, then divide the total by the actual hours the employee works. Assume the employee earns $15 per hour. In using the 2,080 hours per year formula -- which is 40 hours per week multiplied by 52 weeks – after you subtract non-working hours such as vacation and sick time plus holidays, the employee has 1,968 work hours for the year.

To get your annual unburdened payroll cost for this employee, multiply 1,968 by $15 to get $29,520. Let’s say your payroll tax and insurance liabilities for this employee plus bonus, 401k match and health insurance comes to $13,000. To get your annual burdened payroll cost, add $29,520 to $13,000 to get $42,520. Then, divide $42,520 by 1,968 to get $21.61, which is the employee’s real hourly rate.

To get at an accurate assessment of your burdened payroll, you must have the correct rates. For example, you’ll need your federal and state unemployment tax, Social Security tax and Medicare tax rates. You may get federal tax rates from the Internal Revenue Service Circular E, the Employer’s Tax Guide, and state tax rates from the administering state agency. Obtain amounts paid toward employee benefits from your company's payroll records.