A comprehensive breakdown of expenses relating to the recruiting, onboarding, and management of a contingent workforce.
Introduction:
When discussing the rates charged to clients and the compensation provided to crew members, it's important to clarify the factors that contribute to the difference between these amounts. In this article, we aim to shed light on the various expenses involved in maintaining a workforce, including both direct and indirect costs. By understanding the comprehensive nature of these expenses, businesses can make informed decisions regarding their workforce and assess the true cost-to-benefit ratio.
Direct Cost of Labor:
Direct costs are expenses directly associated with the wages earned by employees or contractors. They include the following:
1. Payroll Costs:
Employee Payroll / Contractor Fee: The amount paid to the employee or contractor, which can be an hourly rate, day rate, or flat rate.
Employer Payroll Tax: Contributions made by the employer for federal, state, and local taxes, including Social Security, FICA, FUTA, and state unemployment taxes.
2. Non-Billable Expenses:
Job-related expenses that cannot be billed back to the client, such as parking fees, bridge tolls, hotel accommodations, and meals. These costs are often charged against the job and need to be accounted for.
3. Insurance Coverage:
General Liability Insurance: Protects the company from claims resulting from accidents caused by employees.
Workers Comp Insurance: Mandatory insurance provides disability benefits and medical care to employees injured on the job.
Commercial Auto Insurance: Insurance coverage for vehicles used by employees or contractors for work purposes.
4. Processing Expenses:
Merchant Processing Service Fees: Costs associated with processing credit card payments, vary based on volume and risk.
Invoice/Payroll Processing: Expenses related to processing invoices and payroll for payment, including verification, accounting entries, and client approvals.
Invoice Payment Transaction Fees: Transaction fees incurred when using payment systems like Venmo, PayPal, or other methods.
5. Invoice Exceptions Expenses:
Additional costs and time are required to investigate and handle invoice exceptions that do not match time cards or contractor invoices.
Indirect Costs:
Indirect costs are expenses incurred throughout the employment cycle, from recruitment to termination. They include the following:
1. Cost of Job/Sale:
Materials: Costs of supplies and specialized gear used for job execution.
Equipment: Additional gear required for industry professionals to perform their tasks effectively.
2. Human Resources:
Administration: Costs associated with managing corporate governance, compliance audit, human resources, and finance.
Recruiting & Onboarding: Expenses related to soliciting, recruiting, and onboarding new candidates.
Training & Management: Costs of providing training, workshops, and efficient management.
3. Marketing & Sales:
Marketing & Marketing Operations: Costs associated with demand generation, lead nurturing, advertising, promotion, and sponsorship.
Sales & Sales Operations: Expenses related to business development, account management, commuting, travel, and materials.
4. Operating Expenses:
Office Salaries: Compensation for office personnel, including labor coordinators, accountants, office managers, sales and marketing personnel, and operations staff.
Office Lease & Utilities: Costs of office space lease, utilities (gas, electric, water, garbage), and building improvements.
Telecom: Expenses for landline, toll-free, fax, mobile numbers, and internet connection.
Professional Fees: Costs for CPAs, bookkeepers, and lawyers for tax preparation, contract review, legal representation, etc.
Supplementary Insurance: Expenses for additional insurance coverage beyond general liability and workers' compensation.
Office Furnishings: Costs of furniture, computers, printers, and other equipment for office setup.
Office Supplies: Expendables required for day-to-day operations, including paper, pens, printer ink, and cleaning supplies.
5. Recurring Fees:
Trade Membership Fees: Expenses associated with maintaining memberships in professional organizations or trade associations.
Vehicle Registration: Costs for registering company vehicles and maintaining legal compliance.
Software Licenses: Fees for software applications required for accounting, project management, time tracking, etc.
Monthly Bank Fees: Charges incurred for maintaining business bank accounts, transactions, and related services.
Tax-Related Fees: Costs for tax filings, audits, and consulting services provided by tax professionals.
Lost Revenue and Missed Opportunities:
Lost revenue and missed opportunities can significantly impact a business's profitability. These include:
Service Recovery: Costs associated with rectifying service issues, including remedial work, materials, and customer support.
Bad Debt: Unpaid invoices or payments that cannot be collected.
Late Payments: Financial penalties or interest charges incurred due to delayed client payments.
Lost Sales Opportunities: Revenue that could have been generated but missed due to various reasons, such as resource constraints or ineffective sales efforts.
Conclusion:
By understanding the comprehensive breakdown of direct and indirect costs, operating expenses, and the impact of lost revenue and missed opportunities, businesses can gain a clearer picture of the true cost of labor. It is essential to consider these factors while making informed decisions about workforce management and striving for profitability. However, keep in mind that specific expenses may vary depending on the business model, industry, location, and individual circumstances. Consultation with professionals familiar with your specific business and state regulations is recommended to accurately assess the costs involved.
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