How to Calculate Employer Total Compensation

by Ruth Mayhew; Updated September 26, 2017

Employers use total compensation figures to determine their organization's budget and to forecast the company's spending based on their compensation amounts and projections for future years concerning business growth, sustenance or decline. Generally speaking, a total compensation package consists of everything from an hourly wage to a company-provided meal. Salaries, wages, health benefits, parking costs and a number of other items are part of an employer's total compensation. In sum, it's the cost an employer pays to maintain its workforce.

Step 1

Assemble employee data concerning salary and wage rates, including overtime calculations for the previous three years, to assist in projecting overtime for the current year. Using historical data -- particularly for overtime pay -- is helpful because it gives you more than one year to examine the ebb and flow of overtime for seasonal changes and other business demands that might create the need for more workers.

Step 2

Sort your data by department or position to make the calculations manageable if your employee base is large. Calculating total compensation by department also may help you determine which departments have higher staffing costs, which is essential when you start your workforce planning and strategy.

Step 3

Add the annual salaries and wages for all employees, including overtime. Calculate separate figures each for commissions, bonuses, incentives, mutually agreed-to severance packages and employee rewards. Employee rewards are generally part of a separate recognition and rewards program that's monitored by an HR staff person. However, your rewards program should be calculated on a per-employee basis, even though all employees don't receive rewards each year. For example, your company might budget $15,000 for employee rewards, plus an additional $5,000 for programming. If your employee count is 500 employees, your cost for the employee recognition and rewards program is $20,000 divided by 500, which equals $40 per employee.

Step 4

Obtain payroll information for tax payments made on behalf of employees to federal and state governments, including Social Security and Medicare (FICA) payments, unemployment insurance taxes and workers' compensation premiums. An employer's tax liability may vary slightly due to fluctuations in the number of employees working, as well as their earnings. Likewise, experience ratings can increase or decrease your company's premiums for unemployment insurance and workers' compensation costs. Ensure you have accurate information to make reasonable estimates for future years.

Step 5

Calculate employee benefits information for group health care, vision and dental care options, short-term and long-term disability premiums, retirement savings contributions, profit sharing, employee assistance program costs and administrative costs for all of the benefits your company provides to employees. Don't overlook benefits such as meals, parking, special events such as birthday parties or office celebrations, and other activities that your organization pays for and employees benefit from. Use separate spreadsheets for each benefit calculation because it can get complex, especially when you're factoring in several types of insurance coverage. Calculate insurance premiums based on employee selections -- you might be contributing $400 per month for individual coverage, while your contribution for employees with several dependents may be much higher.

Tips

  • Following your calculation, you can provide your employees with a statement of their total compensation. This statement reflects what the company pays on their behalf, in addition to actual wages. Many employees are surprised to learn how much employers pay for employees. Providing your staff with individualized total compensation statements annually can possibly improve employee satisfaction.

About the Author

Ruth Mayhew began writing in 1985. Her work appears in "The Multi-Generational Workforce in the Health Care Industry" and "Human Resources Managers Appraisal Schemes." Mayhew earned senior professional human resources certification from the Human Resources Certification Institute and holds a Master of Arts in sociology from the University of Missouri-Kansas City.